Contents
Metso From the CEO ...... 8 Metso and megatrends ...... 10 Metso and the stakeholders ...... 14 Vision, mission and values ...... 16 Strategy ...... 18 Services business ...... 20 Environmental solutions ...... 26 Global presence ...... 32 Metso people ...... 40 We are building a sustainable future Targets and achievements ...... 43 together with our stakeholders. Solutions that promote sustainability benefit our customers and support our profitable Business review Results Business at a glance ...... 50 growth targets. Customer industries ...... 52 by working together Mining and Construction Technology ...... 56 Energy and Environmental Technology ...... 58 Paper and Fiber Technology ...... 60 Group figures ...... 62
METSO Segment figures ...... 63 Operational figures ...... 66 Quarterly information ...... 68
ANNUAL REPORT
Financial Statements Table of Contents ...... 73 Board of Directors´ Report ...... 74 Consolidated Financial Statements ...... 83 2010 Financial Indicators ...... 137 Parent Company Financial Statements ...... 139 Shares and Shareholders ...... 142 Auditor´s Report ...... 148
Governance Corporate Governance Statement ...... 149 Board of Directors ...... 160 Executive Team ...... 162 Metso Executive Forum ...... 164 Assurance Report ...... 165 Risks and risk management ...... 166
Investor information Investor relations ...... 170 For shareholders ...... 171
Shortcuts Annual General Meeting ...... 150,171 Assurance Report ...... 165 Competitors ...... 19, 50 Customers ...... 14, 21,50 Dividend ...... 44 Executive compensation ...... 100,158 Financial targets ...... 44
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Metso Corporation | Fabianinkatu 9 A, P.O. Box 1220, FI-00101 Helsinki | Tel. +358 20 484 100 Fax +358 20 484 101 | www.metso.com MEVSK ANNUAL REPORT 2010 How to read Contents Metso in brief this report In our Annual Report 2010, we address Metso Metso’s businesses MetsoFrom the CEO is ...... 8a global supplier of technology sustainability issues that are essential Metso and megatrends ...... 10 in terms of our strategy, such as our andMetso servicesand the stakeholders that ...... 14 help our customers to Vision, mission and values ...... 16 Mining and Construction Technology global presence, our environmental processStrategy ...... 18 natural resources and recycle We are a global supplier of technol- solutions, Metso people and our co- Services business ...... 20 materialsEnvironmental solutionsinto valuable ...... 26 products. Our ogy and services for the mining and operation with various stakeholders. Global presence ...... 32 construction industries. Our product customersMetso people ...... 40 operate in the mining, con- We are building a sustainable future Targets and achievements ...... 43 portfolio covers mining, minerals and together with our stakeholders. Solutions The ‘Links & Notes’ section contains ad- struction, power, oil and gas, recycling aggregates processing systems, service ditional sources and information about and pulp and paper industries. We are solutions, and wear and spare parts. that promote sustainability benefit our the Annual Report topics. customers and support our profitable trulyBusiness global review – we have operations in Share of Metso’s net sales Results overBusiness 300 at a glance units ...... 50 in more than 50 coun- Forward-looking statements The printed report is supplemented by growth targets. by working together Customer industries ...... 52 It should be noted that certain statements herein which the online publication Metso Sustain- tries.Mining andWe Construction contribute Technology to ...... 56 a more sustain- Energy and Environmental Technology ...... 58 are not historical facts, including, without limitation, ABOUT THIS REPORT ability Results 2010, which is available ablePaper and world Fiber Technology through ...... 60 the collective effort those regarding expectations for general economic at www.metso.com. The online pub- Group figures ...... 62 development and the market situation, expectations for Concept, design and production: METSO ofSegment about figures 28,500 ...... 63 Metso professionals 40% customer industry profitability and investment willing- Miltton Oy lication describes our development Operational figures ...... 66 in the areas of economic, social and workingQuarterly information together ...... 68 with our stakeholders. ness, expectations for company growth, development and profitability and the realization of synergy benefits Photos: Tuomas Harjumaaskola , ANNUAL REPORT environmental responsibility through Energy and Environmental Technology and cost savings, and statements preceded by “expects,” Seppo Kaksonen, Jackson Lowen, facts and figures. We are a supplier of boiler plants for power “estimates,” “forecasts” or similar expressions, are Björn Olsson, Tomi Parkkonen, Sanjay Sharma, Financial Statements generation, process automation systems forward-looking statements. Sergio Zacchi, Getty Images, Shutterstock Sustainability information presented in Table of Contents ...... 73 These statements are based on current decisions and Board of Directors´ Report ...... 74 and special valves, equipment for metal plans and currently known factors. They involve risks Paper: Galerie Art Silk 300g, Galerie Art Silk 130g, Metso’s 2010 Annual Report and in the Consolidated Financial Statements ...... 83 recycling and solid waste management, 2010 and uncertainties which may cause the actual results to Galerie Fine Silk 90g online publication ”Metso Sustainability Financial Indicators ...... 137 Parent Company Financial Statements ...... 139 and expert and life-cycle services. materially differ from the results currently expected by Results 2010” have been externally Shares and Shareholders ...... 142 the company. Printing: Lönnberg Painot Oy 2011 assured. In its sustainability reporting Auditor´s Report ...... 148 Share of Metso’s net sales Such factors include, but are not limited to: Metso has applied the Global Report- 1. General economic conditions, including fluctuations in exchange rates and interest levels which influ- ing Initiative (GRI) sustainability report- ence the operating environment and profitability of The paper, and the pulp used in making the ing guidelines. Governance customers and thereby the orders received by the paper, was produced with machines and Corporate Governance Statement ...... 149 company and their margins Board of Directors ...... 160 26% equipment manufactured by Metso. The Executive Team ...... 162 2. The competitive situation, especially significant tech- report is printed on Galerie Art paper, which is Metso Executive Forum ...... 164 nological solutions developed by competitors PEFC-certified and meets the environmental Assurance Report ...... 165 3. The company’s own operating conditions, such as criteria for the Swan ecolabel. The printing Risks and risk management ...... 166 Paper and Fiber Technology the success of production, product development and inks and chemicals used in printing comply 33% We are a global supplier of technology project management and their continuous develop- with the requirements for the Swan ecolabel for the pulp and paper industry. Our ment and improvement and the REACH regulation. The printing ink is Investor information 40% offering also covers know-how and 4. The success of pending and future acquisitions and plant oil-based, and the other materials used Investor relations ...... 170 restructuring are recyclable and eco-friendly. The energy ef- For shareholders ...... 171 maintenance services. ficiency and emissions, from manufacturing to transportation, are monitored. The operations Share of Metso’s net sales Group Head Office of the Lönnberg Painot Oy printing house are Metso Corporation ISO 9001 certified. 26% Fabianinkatu 9 A, FI-00130 Helsinki PO Box 1220, FI-00101 Helsinki Tel: +358 20 484 100 33% Fax: +358 20 484 101 Shortcuts www.metso.com Annual General Meeting ...... 150,171Others Assurance Report ...... 165 Competitors ...... 19, 50 Customers ...... 14, 21,50 Dividend ...... 44 Executive compensation ...... 100,1581% Financial targets ...... 44
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Metso Corporation | Fabianinkatu 9 A, P.O. Box 1220, FI-00101 Helsinki | Tel. +358 20 484 100 Fax +358 20 484 101 | www.metso.com MEVSK ANNUAL REPORT 2010 How to read Metso in brief this report In our Annual Report 2010, we address Metso’s businesses sustainability issues that are essential Metso is a global supplier of technology in terms of our strategy, such as our and services that help our customers to Mining and Construction Technology global presence, our environmental process natural resources and recycle We are a global supplier of technol- solutions, Metso people and our co- materials into valuable products. Our ogy and services for the mining and operation with various stakeholders. construction industries. Our product customers operate in the mining, con- portfolio covers mining, minerals and The ‘Links & Notes’ section contains ad- struction, power, oil and gas, recycling aggregates processing systems, service ditional sources and information about and pulp and paper industries. We are solutions, and wear and spare parts. the Annual Report topics. truly global – we have operations in Share of Metso’s net sales over 300 units in more than 50 coun- Forward-looking statements The printed report is supplemented by It should be noted that certain statements herein which the online publication Metso Sustain- tries. We contribute to a more sustain- are not historical facts, including, without limitation, ABOUT THIS REPORT ability Results 2010, which is available able world through the collective effort those regarding expectations for general economic at www.metso.com. The online pub- of about 28,500 Metso professionals 40% development and the market situation, expectations for Concept, design and production: lication describes our development customer industry profitability and investment willing- Miltton Oy working together with our stakeholders. ness, expectations for company growth, development in the areas of economic, social and and profitability and the realization of synergy benefits Photos: Tuomas Harjumaaskola , environmental responsibility through Energy and Environmental Technology and cost savings, and statements preceded by “expects,” Seppo Kaksonen, Jackson Lowen, facts and figures. We are a supplier of boiler plants for power “estimates,” “forecasts” or similar expressions, are Björn Olsson, Tomi Parkkonen, Sanjay Sharma, generation, process automation systems forward-looking statements. Sergio Zacchi, Getty Images, Shutterstock Sustainability information presented in These statements are based on current decisions and and special valves, equipment for metal plans and currently known factors. They involve risks Paper: Galerie Art Silk 300g, Galerie Art Silk 130g, Metso’s 2010 Annual Report and in the recycling and solid waste management, and uncertainties which may cause the actual results to Galerie Fine Silk 90g online publication ”Metso Sustainability and expert and life-cycle services. materially differ from the results currently expected by Results 2010” have been externally the company. Printing: Lönnberg Painot Oy 2011 assured. In its sustainability reporting Share of Metso’s net sales Such factors include, but are not limited to: Metso has applied the Global Report- 1. General economic conditions, including fluctuations in exchange rates and interest levels which influ- ing Initiative (GRI) sustainability report- ence the operating environment and profitability of The paper, and the pulp used in making the ing guidelines. customers and thereby the orders received by the paper, was produced with machines and 26% company and their margins equipment manufactured by Metso. The 2. The competitive situation, especially significant tech- report is printed on Galerie Art paper, which is nological solutions developed by competitors PEFC-certified and meets the environmental 3. The company’s own operating conditions, such as criteria for the Swan ecolabel. The printing Paper and Fiber Technology the success of production, product development and inks and chemicals used in printing comply 33% We are a global supplier of technology project management and their continuous develop- with the requirements for the Swan ecolabel for the pulp and paper industry. Our ment and improvement and the REACH regulation. The printing ink is 40% 4. The success of pending and future acquisitions and plant oil-based, and the other materials used offering also covers know-how and restructuring are recyclable and eco-friendly. The energy ef- maintenance services. ficiency and emissions, from manufacturing to transportation, are monitored. The operations Share of Metso’s net sales Group Head Office of the Lönnberg Painot Oy printing house are Metso Corporation ISO 9001 certified. 26% Fabianinkatu 9 A, FI-00130 Helsinki PO Box 1220, FI-00101 Helsinki Tel: +358 20 484 100 33% Fax: +358 20 484 101 www.metso.com Others 1% Metso in 2010
Key figures
EUR million 2009 2010 Change Net sales 5,016 5,552 11% Services, % of net sales 42 45 Earnings before interest, tax and amortization (EBITA) and non-recurring items 399.0 491.0 23% % of net sales 8.0 8.8 Profit 151 258 71% Earnings per share, EUR 1.06 1.71 61% Dividend per share, EUR* 0.70 1.55 121% Return on capital employed (ROCE), % 10.0 13.5 NetIn Brief: sales Net by salescustomer by customer industry industry Net sales EUR ,2 million (200: EUR ,01 million) Gearing, % 32.5 15.0
Free cash flow 717 435 -39% Paper Research and development expenses 115 111 -3% Mining 2% (2%) Orders received 4,358 5,944 36% ConstructionPulp 1% (1%) Order backlog, Dec 31 3,415 4,023 18% Power generationMetal recycling 11% (1%) Personnel, Dec 31 27,166 28,593 5% Oil and gas % (%) Lost time incident frequency (LTIF) n/a 12.4 Oil and gas Recycling % (%) Sponsorships 0.6 3.1 Carbon dioxide emissions, 1,000t 265 284 7% Pulp %Power (%) generation Energy consumption, TJ 3,398 3,693 9% Paper 0% (2 %) Construction Metals use, 1,000t 156 235 51%
* 2010 Board’s proposal Mining
Net sales and EBITA before non-recurring items InOrders Brief: received Orders received by area by market area non-recurring items Orders received EUR , million (200: EUR , million) EUR million
,7000 % FinlandAfrica % (%)and Middle-East
,6000 12 Other Nordic countries % (%) Asia-Pacific ,5000 10 Other European countriesSouth 2% and (22%) Central America ,4000 8 North AmericaNorth America 1% (1%) ,3000 6 South andOther Central European countries America 1% (12%) ,2000 4 Asia-PacifiOther c 2%Nordic (2%) countries ,1000 2 Africa andFinland Middle East % (%) 0 0 2006 2007 2008 2009 2010 Net sales EBITA before non-recurring items, % of net sales
Orders received and order backlog InPersonnel Brief: Personnel by area by area Personnel 2, (200: 2,1) EUR million Africa and Middle-East ,7000 Finland 1% (2%) Asia-Pacific ,6000 Other Nordic countries 10% (11%) ,5000 Other EuropeanSouth and Central America countries 1% (1%) ,4000 North AmericaNorth America 12% (1%) ,3000 South and Central AmericaOther 11% European (10%) countries ,2000 Asia-Pacifi c 1% (1%) ,1000 Other Nordic countries Order backlog Africa and Middle East % (%) 0 Finland 2006 2007 2008 2009 2010 Orders received Orders received Order backlog www.metso.com Metso Annual Report 2010 The world around us affects everything we do. The global megatrends that shape our environment offer us opportunities for growth and development. By working together with our stakeholders, we can have a more far-sighted vision, capture new opportunities and build a sustainable future.
Metso Annual Report 2010 In the picture: Jukka Tiitinen, Mike Edwards, Krishan Kumar, Dharamvir Singh www.metso.com By working together and in line with our values, we can respond to our stakeholders’ expectations and deliver results.
www.metso.com Metso Annual Report From the CEO
Metso’s President and CEO Matti Kähkönen ingly important. These trends bring both challenges and opportunities for Metso and for other industry. and his predecessor Jorma Eloranta sat down – MK: We are well positioned to benefit from the glob- in Helsinki to talk about Metso and its future. al megatrends. Favorable economic development in emerging markets not only supports the demand Metso’s financial position and strategy are for metals, energy and infrastructure solutions, and on solid footing. However, the global pace of paper and board, it also offers us excellent oppor- tunities. Our strong position in services is based on change is accelerating and driving the need for long-term customer relationships and our extensive Metso to continuously renew and improve its installed equipment base, and we are continuously developing our services portfolio. Global concern operations. Results are being achieved by work- about environmental issues and sustainability cre- ing together. ates demand also for our environmental solutions and for the life-cycle services supporting them. So our strategic focus areas offer us excellent growth opportunities also in the future. Metso’s position is strong Continuous renewal is a critical element of our – JE: In ten years Metso has evolved into a global com- own operations. Competition in the global market- pany with flexible operating models. Our services place is fierce and constant. Today’s competitors are business has more than doubled to some EUR . developing their operations and new contenders are billion, and it represented percent of our net sales emerging. Moreover, our customers are expecting in- last year. About half of the orders we receive come creasingly better results at a more competitive price. from emerging markets; just ten years ago, the cor- For these reasons, we must continuously evolve. For responding figure was percent. The environmental Metso employees, only a company that is continuous- business is a newer development area for us – and ly improving is a good workplace in the long-term. an area that has room to grow because the world is in need of technologies and solutions that are more Collaboration brings results eco-efficient. And today Metso’s profitability is at – JE: Our discussions with our customers in recent a better level than before. But I am convinced that months have been encouraging and forward looking. Metso has much potential to do even better. In fact, a The markets are recovering and Metso is considered big question is how to make Metso even better. the leading player in its sector and a good partner. – MK: Metso’s position stabilized and the company – MK: It is a matter of honor for us to make sure that matured during Jorma’s tenure. A strong financial we remain a desired partner also in the future. The foundation is important because it gives us op- quality of our products, our delivery reliability and portunities to invest in product development and our services portfolio must be superior. to actively develop our operations. Last year the – JE: Satisfied customers are the best guarantee for markets recovered and Metso’s business turned to continued profitable growth, which in turn creates growth. Now we are pursuing more momentum as new business opportunities and interesting jobs the markets rapidly evolve. for Metso employees. Satisfied shareholders are another cornerstone in the solid development of the Accelerating pace of change company. The total shareholder return, taking into – JE: True, the world is changing at a faster pace than account the increase in share price and dividends just a decade ago. The economy has globalized, paid, on Metso’s share was percent last year. emerging markets are growing in significance, the – MK: Also the Board’s dividend proposal of EUR . demographics are changing as the global population per share reflects our solid financial position and con- rises and environmental issues are becoming increas- fidence in Metso’s future performance.
Metso Annual Report www.metso.com In Kähkönen, the picture: Matti Jorma Eloranta.
All Metso employees deserve praise for the good Conduct and the UN Global Compact initiative we LINKS & performance in . This year will also have its have endorsed guide Metso employees to operate NOTES challenges. Uncertainties in the generally favorable in a manner consistent with sustainability. outlook are created by e.g. the fragility of economic In line with these policies, Metso employees and Metso´s vision, mis- recovery in developed markets and stronger inflation other stakeholders can expect Metso to operate in sion and values, p. – pressures. On the positive side, demand in emerging a straightforward and transparent manner. I believe markets remains steady, the outlook in the mining this is to the benefit of Metso employees, our cus- Metso’s strategy, industry continues to improve and the demand for tomers and our shareholders. p. – services is expected to remain strong in all our busi- – JE: Metso’s situation is good and it has a strong Metso people, nesses. strategy. I am thrilled that my successor and Metso’s p. – – JE: I want to thank our customers, our partners and, entire Executive Team were found from within the most of all, Metso employees for seven terrific, and company. This indicates that Metso has competent sometimes challenging, years of achieving results people and that the company is heading in the together. right direction. I have no doubt that Metso will continue along the path of profitable growth under On the way to a sustainable future the leadership of Matti and his team. – MK: Last year we had an internal discussion about However, I would be very surprised if the new what is Metso’s purpose. Our renewed mission offers management didn’t present changes. Continuous a clear answer to this: “We contribute to a more sus- renewal to benefit customers and to secure com- tainable world by helping our customers to process petitiveness is important. natural resources and recycle materials into valuable – MK: The new Executive Team is off to a good start products.” and has received full support. I want to thank Jorma Likewise, our new vision ”Working as One to be for his extraordinarily successful leadership of Number One” and our new leadership principles sup- Metso. As a company, Metso is in excellent shape. port our profitable growth and will help us towards This gives the new Executive Team a good platform a sustainable future. Also our values, our Code of for working together with Metso employees. www.metso.com Metso Annual Report METSO AND MEGATRENDS Metso and megatrends
Globalizing economy
Supply chains Redistribution changes in their domestic markets in recent years, and they are expanding their opera- in change of economic tions also to global markets. power When the number of competitors grows, product life cycles become shorter and new innovations are created faster than before. Tighter competition often lowers product prices. In the capital goods markets, the company’s own strong research and product development as well as new innovations are increasingly important competitive factors.
Supply chains in change The globalizing economy is changing the markets’ ways of operating and value chains. The world’s different economies and their players are in closer contact and more dependent on each other. By globally managing the supply chain’s various links, like procurement, production, distribution, sales and marketing, companies can find the most efficient solutions, both operation- ally and economically. The significance of the emerging markets has grown along the entire supply chain. It is increasingly difficult for companies New competitors in to gain a competitive or cost advantage from manufacturing. Product development, global markets design and brand, as well as close customer relations and life cycle services have become the new competitive advantages. In this kind of market environment, many capital Economic power is gradually shifting away to be a period of dominance for emerging goods producers, like Metso, are pursuing from developed markets and being redis- economies. new growth opportunities from the services tributed more evenly among more countries Global industrial companies, including business. and geographical regions. The liberalization Metso, have clearly strengthened their pres- of global trade and information technology ence in emerging markets. This has helped development are accelerating this trend. As the companies to survive the economic a result, the rules for the global operating downturn that started in . LINKS & environment are being redefined. It was feared that the economic crisis NOTES would slow globalization through growth in Redistribution of economic power new protectionism. The measures promot- Read more about how Metso is responding ing the liberalization of global trade are to the opportunities for growth and change The focus of global economic growth shifted offered by the globalizing economy. during the first decade of the st century continuing, although their pace of imple- from developed to emerging markets. mentation has temporarily slowed down. Strategy, p. – Growth has slowed in developed markets and is today mainly based on the growth New competitors in global markets Services business, p. – in services. The rise in living standards, an Emerging markets are creating new, often Global presence, p. – increase in consumption, and the construc- very competitive players for global markets. tion of new production capacity and infra- These companies have a strong ability to structure in emerging markets will continue adapt to changes in the operating envi- to drive growth. The ’s are estimated ronment as a consequence of the major
Metso Annual Report www.metso.com METSO AND MEGATRENDS
Rise of emerging economies
Growing global efficient waste management becomes middle class increasingly important. Growing global middle class Over the past decade emerging markets have seen the formation of an extensive middle class with purchasing power and a desire to quickly achieve Western standards of living. This translates to growth in the demand for natural raw materials and for consumer goods in particular. The growing consumption may also lead to competition for natural raw materials and production resources. The production of consumer goods has increasingly shifted to emerging markets, which have production facilities manufacturing products for their growing domestic markets as well as for the whole world.
Local, cost-efficient solutions Companies and consumers in emerging markets are very cost-conscious and don’t want to pay for all the product features Economic Local, that have been developed for Western customers. To fully tap into the growth op- power of cost-efficient portunities in emerging markets, Western emerging markets solutions companies must know the competitive situation and the customer needs of the new markets and they must be ready to adapt their products and services. Custom- ers in emerging economies want to achieve This decade marks the first that economies economies to a new kind of competition. high productivity and a competitive quality of emerging markets are estimated to The utilization of natural resources and with basic applications that are economical account for a larger share of world GDP production based on them are often a and can be delivered quickly. Competing than those of developed markets. Knowing platform for the rising affluence of devel- successfully requires flexibility and a strong customers’ needs is a central success factor oping national economies. A functioning local presence. in emerging markets. transportation infrastructure is necessary for economic growth and for investments LINKS & Economic power of into production in a new geographical area. NOTES emerging markets As prosperity and urbanization advance, The BRIC countries (Brazil, Russia, India and consumer habits change, thereby boosting Read more about how Metso is responding China) account for over percent of world the demand for packaging board, paper to the opportunities for growth and change offered by the rise of emerging economies. GDP growth. China has the biggest signifi- and tissue, for instance. The growth in cance and has become a superpower in the consumption also increases the demand for Strategy, p. – global economy. Development in India and minerals and thus investments in the mining Brazil has also been very strong. In addition, industry. Maintaining economic growth and Services business, p. – there are a number of other countries in the related urbanization require additional Global presence, p. – Asia, the Middle East and Eastern Europe investments in infrastructure development that will each change the global economic and increase the consumption of aggre- playing field. These rapidly growing econo- gates and minerals. As economic growth mies are challenging the developed market advances, energy consumption grows and www.metso.com Metso Annual Report METSO AND MEGATRENDS
Changes in demographics
Population growth Knowledge transfer Many companies in labor-intensive industries are transferring their operations and urbanization and training needs to emerging markets where skilled employ- ees are more readily available. More and more often companies are dealing with the challenges associated with the availability of competent employees by concentrat- ing only on their core competencies while outsourcing the other functions. This creates new business opportunities for e.g. process and equipment suppliers in the area of service and maintenance.
Need for knowledge transfer and training Aging personnel and outsourcing or transferring operations to new geographi- cal regions challenges companies’ ability to retain the knowledge that is important for operational continuity. Transferring knowl- edge, especially tacit knowledge to younger generations and new areas is vital in the ongoing transition. The internal training programs supple- Aging workforce ment the knowledge and skills acquired in local educational facilities. Collaboration in developed markets with local educational facilities is becoming increasingly common as means to ensure that the students graduating have the right Population growth and the economic requires more packaging materials as well as set of skills. In an effort to accelerate internal growth of emerging nations are leading machines and equipment to produce them. knowledge transfer, job rotation between to rapid urbanization, which is estimated A sufficient supply of energy and water as different countries and units and the utiliza- to continue for a long time. Today it is well as waste management and recycling tion of latest information technology, like estimated that percent of the world’s are other challenges related to urbanization. social media, are being used. It is also impor- population, i.e. billion people, will live in In fact, it is envisioned that small paper and tant to increase the know-how employees urban areas in . board mills utilizing recycled materials and in developed markets have regarding the municipal waste-fired power plants will be special issues of emerging markets. Population growth built in urban areas in the future. and urbanization LINKS & Efficient traffic and transportation solutions Aging workforce in NOTES are a necessity for functional metropolises developed markets and for economic development. Building For companies, competent employees are Read more about how Metso is responding to new infrastructure and maintaining and de- a critical factor for success and for stand- the opportunities for growth and development offered by demographic changes. veloping existing infrastructure will require ing out from the competition, and a factor investments globally in the upcoming years, that will become even more emphasized in Services business, p. – boosting the demand for minerals, like iron, the future. In many developed markets, the copper and nickel as well as aggregates. population is aging and population growth Global presence, p. – Transporting the constantly growing vol- is slowing or even declining, which may lead Metso people, p. – umes of food products and consumer goods, to a slow-down in economic growth and a undamaged, from production facilities to labor shortage. In many cases, companies shops, often from one continent to another, must revise their business models to reflect and from shopping centers to homes also the new operating conditions.
Metso Annual Report www.metso.com METSO AND MEGATRENDS
Sustainability and climate change
Increasing quickly, and their adoption allows more time to develop entirely new solutions. regulation Using various biomasses and waste as fuel is an eco-efficient way to produce energy and to conserve natural resources. Boosting efficiency in the recycling and pro- cessing of industrial and household waste and utilization of waste in energy produc- tion can reduce the amount of waste going into landfills and the environmental load caused by waste management.
Increasing regulation The expectations and requirements of company operations and the local and global impacts of those operations have increased. Companies must simultaneously meet shareholders’ expectations and look after the well-being of their personnel and the communities and nature around them. In line with the principle of sustainability, current generations must act in a way that doesn’t compromise the opportunities for New energy future generations. Eco-efficient solutions and Tougher energy and environmental legislation around the world requires the solutions energy efficiency reduction of greenhouse gases, more ef- ficient use of energy and raw materials, as well as increases in recycling and in the use Sustainability, essential for the future, has a search is on for solutions based on renew- of renewable energy sources. The changes significant impact on the activities of eve- able natural resources to replace those have a significant impact on the business ryone. For Metso, sustainability is both an based on non-renewable natural resources. and cost structures of industrial companies. opportunity and a challenge. We promote The use of virgin raw materials is being sustainability by offering our customers eco- reduced in all production through recycling efficient technologies and services. At the and with new technologies. same time, in our own operations we strive Developing new, environmentally for responsibility and for as little environ- friendly technology is often time- and mental impact as possible. capital-intensive. In fact, companies and various research facilities are working LINKS & Eco-efficient solutions together across industrial sectors to develop NOTES Economic growth and the growing solutions that support sustainability. The prosperity and industrialization of emerg- adoption of new technologies is often Read more about how Metso is responding ing economies will boost consumption, slowed by the unwillingness to invest in new to the opportunities for growth and change offered by sustainability and climate change. although many raw materials are already be- technology that is considered expensive. ing used at an unsustainable rate. Sustain- Metso’s strategy, p. – ability requires either lowering the current New energy solutions standard of living or creating new solutions and energy efficiency Environmental solutions, p. – that substantially reduce the environmental Stopping climate change requires solutions Our sustainability online publication impacts of economic growth. that improve energy efficiency and the de- www.metso.com/sustainabilityresults Slowing the greenhouse effect neces- velopment of different forms of renewable sitates significant changes in energy use energy. Solutions improving energy efficien- and production. In energy production, the cy generally can be implemented relatively www.metso.com Metso Annual Report METSO AND THE STAKEHOLDERS Active interaction with our stakeholders
Operating responsibly helps us and our stake- holders succeed. Our key stakeholders are cus- tomers, personnel, investors and shareholders, goods suppliers and subcontractors, other col- laboration partners and media.
Stakeholder expectations and stakeholder collaboration Expectations for operations Ways of collaboration
Customers Reaction speed, quality, operational reliability, return on Regular customer meetings and other direct customer investment, eco-friendliness, local offering of desired contacts, joint development projects, fairs, seminars, services, long-term collaboration, supplementing own extranets, customer satisfaction surveys, supplier certifi- expertise. cations, industry organizations. Personnel Remuneration and incentives, professional develop- Annual development and performance reviews, intranet, ment, open sharing of information and equal treat- employee magazines, training, job satisfaction sur- ment, long-term nature of operations, personal and veys, collaboration, occupational safety committees, work community success, occupational well-being and performance-based, competitive incentives. safety, supportive work community.
Investors and Return on investment, creditworthiness, governance Annual General Meeting, investor and analyst meet- shareholders principles consistent with good practices, transparency ings, investor events (e.g. Capital Markets Day), financial and predictability, compliance with sustainability princi- and non-financial reporting, stock exchange and press ples, reliability, sufficient and up-to-date information releases, news conferences, webcasts and phone confer- about the company’s operations. ences, investor website, continuous investor feedback.
Goods suppliers Operational profitability, long-term collaboration and Regular meetings and direct contact, joint development and subcontrac- the development opportunities it offers, growth, opera- projects, training and development events, supplier tors tional reliability, networking. audits, electronic procurement systems, extranet. Media Reliable, sufficient and up-to-date information about Press events and interviews, press seminars and trips, the company’s operations. press conferences, media service section on the internet, press releases, financial and non-financial reporting, corporate image surveys. Community Regional and local well-being, good corporate citizen- Community development projects, meetings and events, ship, taxes, employment opportunities, long-term opera- participation in legislative work, dialogue with trade and tions compliant with local laws and regulations. civic organizations, internet. Schools and re- Research cooperation, networking, employment op- Research and development projects, research collabora- search institutes portunities. tion, job and trainee positions, student visits, lectures.
SEE LINK 1 SEE LINK 2
Metso Annual Report www.metso.com METSO AND THE STAKEHOLDERS
We engage in collaboration in many ways depending on LINKS & the needs of our stakeholders. We comply with Metso’s NOTES Code of Conduct in all our interactions with stakeholders. Metso’s vision, mission Good governance and management Results and values, p. – support sustainability through dialogue Corporate Governance Our shared values and Code of Conduct as well as our Statement, p. – operating guidelines that comply with local legislation Additional information create a foundation for Metso’s consistent, uniform about our sustainabil- and transparent operations, regardless of business and Global business cooperation ity management and geographical location. fosters economic, ecological a comparison to the Our Code of Conduct describes Metso’s corporate Global Compact princi- and social progress ples in our sustainabil- culture, our commonly accepted ways of operating and ity online publication the commitment to compliance with laws and regula- Can companies contribute to a better world? Yes, www.metso.com/ tions. It supports responsible operations, sustainability say Stefano Bertasi, Director, Department of Policy sustainabilityresults and our success. It functions as commonly accepted and Business Practices, International Chamber of operating guidelines for Metso employees and our Commerce (ICC), and Jukka Seppälä, Vice President, collaboration partners and as a foundation for all our Stakeholder Relations and Trade Policy, Metso. decision making and business transactions. – Stefano Bertasi (SB): At ICC, private sector experts can together analyze and contribute to international A foundation of international principles policy initiatives affecting world business. The foundation of our Code of Conduct are the UN’s – Jukka Seppälä (JS): Companies need to understand Universal Declaration of Human Rights, the UN’s Global how different markets interact as well as the common Compact initiative, which we have endorsed, and the interests or reasons for conflicts between market areas, International Labour Organization’s (ILO) declaration countries and even individual companies. on Fundamental Principles and Rights at Work. When – SB: Cross-border trade and investment are key drivers applicable, the OECD’s Guidelines for Multinational En- of economic growth and social progress, as well as terprises are also incorporated into our Code of Conduct. powerful forces for peace and prosperity. As a Group, we also endorse the International Chamber – JS: The world economy benefits from free trade of Commerce’s (ICC) Business Charter for Sustainable and investments that take place in a fair, honest and Development. transparent way. We comply with the ten principles of the UN’s Global – SB: In addition to working with governments to Compact initiative in the areas of human rights, labor contribute to environmental stewardship and social standards, the environment and anti-corruption. progress, the ICC promotes best practices among its SEE LINK 3 members through sharing experiences and developing guidance. – JS: Metso’s working groups have gained a lot of information on regulations and best practices regarding ecological and social issues. Case stories – SB: Part of global development depends on finding The cases in our Annual Report are stories global solutions to global challenges, such as financial about our cooperation with different stake- stability, climate change or food security. Businesses holders and the results we have achieved. By are able to assemble people, capital and innovation working together closely, we can reach our under controlled risk-taking, to create jobs and produce goods and services profitably. They have a major role in common goals. fostering economic, ecological and social progress, and in contributing to global development.
www.metso.com Metso Annual Report VISION, MISSION AND VALUES
Vision, mission and values: Building on strong corporate culture and leadership
Our customer promise is Expect results
How do What is Why do we succeed our goal? we exist? together?
Working as One to be We contribute to a more By knowing our values that Number One. sustainable world by guide us: Driving customer This is our vision. helping our customers to success, seeking innovations, process natural resources performing together and and recycle materials into respecting each other. valuable products. This is our mission. By following our Code of Conduct that states our ethical principles. By the right kind of leader- ship behavior defined in our leadership principles: Show the way forward Build inspiration and trust Develop and coach Drive results
Metso Annual Report www.metso.com VISION, MISSION AND VALUES
Our vision is Working as One Our values t We are direct and honest in our commu- to be Number One Driving customer success means that nication, and we create an environment Working as One implies working closely t We succeed through the success of our of mutual trust with our customers, suppliers and other customers t We encourage and provide opportuni- key stakeholders as well as with each other t We work closely to understand custom- ties for each other to develop as profes- internally. We encourage and inspire each ers’ needs and to respond quickly sionals other to achieve the best results. The more t We are focused on delivering quality we pull together, share knowledge and solutions and services for our customers Metso’s leadership principles inspire each other, the stronger and more t High standards and professional perfor- Companies compete in the short-term successful we and our stakeholders will be. mance are key in serving our customers with products, technologies and market To be Number One is to be the best positions. Long-term, however, a strong cor- in creating value for our stakeholders in Seeking innovations means that porate culture and the leadership behind it everything we do. In order to do this, we are t Creativity and continuous renewal are are crucial for a company’s success. In order determined to develop a working environ- essential for our long-term competitive- to ensure that we have a solid basis for de- ment that attracts the right people to work ness and daily operations veloping and maintaining strong leadership with us and to help them grow and perform t We continuously seek new ways of think- in Metso, we have defined new leadership to their highest capabilities. We always ing and better ways of working principles. present the best possible technology, talent t We encourage the introduction of new and expertise to enable our stakeholders to technologies, and we value innovative The Metso brand achieve their best. ideas and practices Expect results is our promise to our custom- ers and the essence of our strategy. It is the Our mission focus is Performing together means that attitude we share globally: our business is on sustainable solutions t We share information and are willing to to deliver results to our customers to help “We contribute to a more sustainable world learn from each other them reach their goals. by helping our customers to process natural t We combine our vast know-how to resources and recycle materials into valu- create competitive solutions for our able products.” customers Our commitment is to work as One to t We respect each other’s contributions actively contribute towards building a more and solve problems together sustainable world. We are a global company t We keep our promises, and are dedi- with a wide range of effective and envi- cated to those we work with and for ronmentally sound products, services and t We take responsibility for our actions solutions. We value our global diversity and and work hard to achieve agreed-upon high working standards. We are determined targets to create value for our all stakeholders, with a strong focus on shareholder value crea- Respecting each other means that LINKS & tion, by ensuring quality while promoting t We prioritize the well-being, health and NOTES sustainability in industry around the world. safety of all individuals Read more about t We treat each other with respect and our management benefit from our global diversity principles, p. –
www.metso.com Metso Annual Report STRATEGY Strategy Megatrends Our strategic themes
Globalizing economy
Services business
Rise of emerging economies Demographic changes Environmental solutions
Global presence
Sustainability and climate change
Metso is continuing to implement a strategy We contribute to a more sustainable activities supporting them form the core of of profitable growth. Our comprehensive world by helping our customers to process Metso’s know-how and development. The product and services offering, our extensive natural resources and recycle materials into development of cost-efficient solutions for installed equipment base and our strong valuable products. local conditions is an increasingly important presence in emerging markets provide an SEE LINKS 1 AND 2 part of our know-how. Product and project outstanding foundation for fully tapping into deliveries increase our installed equip- the world-changing megatrends. Our strategy Key role for Metso’s technologies ment base, and the expansion of our own is crystallized in three themes that affect all Our services, project and product busi- technology improves our opportunities for of our businesses: strong development of the ness together form a balanced portfolio the continuous development of our services services business and environmental solu- supporting our profitable growth strategy. business. tions, and strengthening our global presence. The services business accounts for approxi- We are pursuing growth both organically and mately percent of our net sales, projects Balanced business portfolio through complementary acquisitions. for approximately percent and products We offer our products and services to the We are striving for improved profitability for approximately percent. mining, construction, power generation, by increasing the share of businesses with We are growing the services business oil and gas, recycling, and pulp and paper the highest profit margins and making our primarily organically through our installed industries. Our customer industries are in cost structure more flexible and global, and equipment base, although we maintain varying phases of development and thus by improving the financial performance of other suppliers’ equipment through our balance the development of our net sales, our least profitable businesses. comprehensive services network as well. We profitability and cash flow. We are continuing efforts to further also support growth with complementary Mining industry markets offer us excel- develop and implement Metso’s leader- acquisitions. lent growth opportunities all over the world. ship principles, vision, mission and values Our own products and technologies The markets for new equipment in construc- throughout our organization. and the research and product development tion technology are relatively mature in
Metso Annual Report www.metso.com STRATEGY
LINKS & NOTES
Strategy themes, p. –
Targets and achievements, p. –
Our targets Our mission
We contribute to a more sustainable world by helping our Growth customers to process natu- ral resources and recycle materials into valuable products. Profitability
developed markets, but provide strong op- hold rather large market shares. This makes competitive arena in the services business is portunities for growth in emerging markets. growth through business acquisitions diffi- typically fragmented and has a high number We supply mining and construction technol- cult. The services business continues to offer of competitors, ranging from local compa- ogy solutions that are typically subjected good growth opportunities globally, both nies to global players. to heavy wear and require a lot of wear and organically and through acquisitions. Our competitors vary by customer in- spare parts throughout their life cycle. The dustry and product. There have been some services business offers us additional growth Strong market positions changes in our competitive environment opportunities around the world. We are one of the global market leaders in recently with the consolidation of smaller We estimate that energy and environ- mining and construction technology, metal players or business acquisitions by players mental technology offers us good oppor- recycling systems, biomass-based energy whose product offering is tangential to ours tunities for growth in the long-term, both production solutions, and paper and fiber or by emerging market competitors enter- organically and through complementary technology. We are among the leading ing the global markets. We estimate that acquisitions. The strong growth in energy suppliers of automation and flow control these transactions have not had a material consumption, biofuels, waste recycling, and solutions for the process industry and of impact on our market positions. We research process automation used to enhance the solid-waste crushing equipment. business acquisition opportunities and efficiency of industrial processes are growth Our main competitors in the delivery monitor changes in the competitive arena. drivers for Metso. of comprehensive production plants are The paper and fiber technology markets global companies that have product and for new machines and equipment are ma- service portfolios somewhat similar to ours. ture, and the majority of new investments There are only a small number of these are being made in Asia and South America. global suppliers of comprehensive solu- The supplier base in big turn-key solutions tions. In individual products, we also have has stabilized to a few key suppliers that smaller regional and local competitors. The www.metso.com Metso Annual Report SERVICES BUSINESS
Metso Annual Report www.metso.com SERVICES BUSINESS
Services business
Results through cooperation
From a machine supplier to a service supplier
With the demand for paper declining, North America has been a mature market for pulp and paper technol- ogy since the mid-1990’s. There have been very few investments in new capacity, and more than 500 ma- chines have been shut down. Instead, the demand for services has increased. In over a decade, we have transformed from a tra- ditional machine supplier to a major services supplier. The net sales of our services business have tripled since the late 1990’s. Today, 98 percent of our Paper & Fiber Technology employees in North America work in ser- vices. The offering covers maintenance, spare parts and life-cycle services. One of our customers is Domtar, the largest integrat- ed manufacturer and marketer of uncoated freesheet paper in North America and the second largest in the world based on production capacity. Over 90 percent of Domtar’s production is made with Metso’s machinery, and to a large extent its mills use Metso’s expertise to service and optimize machine performance. In the picture: Jukka Tiitinen, Metso, Mike Edwards, Domtar. Mike Edwards, Metso, Tiitinen, In the picture: Jukka
www.metso.com Metso Annual Report SERVICES BUSINESS Strategic theme:
Services business
One of our key strengths is our extensive deliveries usually include spare parts in a so-called start- up package. We sell wear parts for the machines also installed equipment base and the services during the warranty period. business supporting it. Our services business The majority of our services business comprises wear and spare parts, the demand for which directly corre- comprises spare and wear parts, maintenance, lates to customer production volumes. Customers value repairs, rebuilds, and various process analyses our local presence and the fast availability and quality of our spare and wear parts. Our investments to develop and optimizations. Our comprehensive local our own products and technologies as well as our own presence supports the growth of the services production support our success as a supplier of spare and wear parts. We provide spare parts mainly for the business. equipment we supply, but we sell wear parts for equip- ment installed both by us and by our competitors.
Our services business has developed vigorously over the past ten years and is one of our main strategic themes. Share of spare and wear parts of services business Consistent with our goal, we have evolved from an Segment net sales equipment supplier to an expert and services company. Mining and Construction Technology 85–90% The services business offers us significant opportuni- Energy and Environmental Technology Approximately 10% ties for development and growth because of our con- Paper and Fiber Technology Approximately 70% tinuously expanding installed machine and equipment base, our comprehensive services portfolio, and our local presence. The growth target we have set for our services Growth from extensive installed business exceeds the pace of growth for equipment and equipment base project sales over the business cycle and will lead to a Based primarily on our installed equipment base, we gradual increase in the share of our services business. In have determined the size of the services business mar- fact, our goal is to grow the services business share of to- ket to be about EUR billion. A significant part of this tal net sales and to reach a situation where the services consists of maintenance and repair activities performed business accounts for over percent of net sales at the by our customers. We estimate our market share to be peak of a business cycle and for as much as percent about – percent of the total market. at the bottom of a cycle, when the share of project and We typically have a very high market share in spare equipment business is low. We pursue growth both parts for Metso equipment; customers usually rely on organically and through business acquisitions. the original equipment supplier for spare parts. The wear In the services business accounted for percent parts market has a lot of local and regional companies (%) of our net sales. In developed markets the share specializing in spare and wear parts; they sell products for was percent and in the emerging markets percent. equipment supplied by a variety of manufacturers and our The foundation of the services business is built on market share is lower than in spare parts. Our market share our own strong product technology and extensive in- in maintenance and other expert services is still low, and stalled equipment base, our profound knowledge of our our goal is to significantly increase our own services offer- customers’ processes, and our presence close to custom- ing and resources in the upcoming years. ers. The goal is to ensure the production and delivery We aim to grow our market share and strengthen our capacity, safety and eco-friendliness of our customers’ presence by expanding our offering also through busi- processes and the quality of the end products. We help ness acquisitions. For example, we gained an extensive our customers to maximize the productivity of their installed paper machine base mainly in North America machine and equipment base. through the Beloit acquisition in . The Fabrics We typically offer a one- or two-year warranty on the business (formerly Tamfelt) acquired at the end of machines, equipment and processes we deliver. Project manufactures wear products that are very complemen-
Metso Annual Report www.metso.com SERVICES BUSINESS
OUR AMBITION: Annual net sales growth of over % in the services business
tary with our own services portfolio and for which we in emerging markets will lead to more and more custom- can offer a strong global growth platform through our ers choosing to outsource maintenance and other expert geographically extensive service network. services. This will offer interesting growth opportuni- Our services offering is not limited exclusively to the ties for our services business and, at the same time, machines, equipment and processes supplied by us or requires us to renew and to invest in a new competent by the companies we have acquired – although, natu- workforce close to our customers. Growing the sales of rally, this is where our expertise is strongest. maintenance and expert services tends to have a positive We estimate that the aging of the workforce in devel- impact also on the sales of spare and wear parts. oped markets and the difficulty in finding skilled experts
Wear parts Spare parts Performance contracts Mining and Construction Fragmented market consolidation opportunities Relatively captive market, stable development Small market share Technology based on own installed equipment base growth opportunities Energy and Recycling: fragmented market consolidation opportuni- Power: Some spare parts; Undeveloped market Environmental ties; Power and Automation: no wear parts Automation and Recycling: based on own growth opportunities Technology installed equipment base
Paper and Fiber Technology Fragmented market consolidation opportunities Relatively captive market, stable development Small market share Fabrics: significant growth opportunities based on own based on own installed equipment base growth opportunities installed equipment base and development of the business
Metso’s transformation from an engineering company to an expert and services company Metso Process agreement
Service Supplier of agreement results
Wear Solution and spare parts provider
Machines Equipment and equipment supplier
New equipment sales
www.metso.com Metso Annual Report SERVICES BUSINESS
Services net sales Net sales by type* Net sales EUR , million EUR million , % Services business % , Project business % Product business % , , ,
*Based on management estimate Services net sales % of external net sales
Expanding our offering to service compete more effectively with small competitors. Also and process agreements in the Recycling business we have good experience with We offer our customers services that cover the entire package-based services business. life cycle of a product or service. Our customers are The service and maintenance activities by our Paper increasingly making their investment decisions based and Fiber Technology and our Power business partly on the total cost and the entire life cycle of the product. take place during our customers’ annual production out- Our customers expect a new kind of know-how from us; ages. Then we must ensure that we and our subcontrac- at the same time, we get the opportunity to support our tors have the necessary resources to carry out the annual customers during the different phases of the machine, maintenance within the planned time frame. equipment or process life cycle. The collaboration high- In our research and development activities, we are lights our ability to integrate the machine or equipment increasingly focusing on new solutions for the services with service and to understand the needs of our differ- business that will improve the cost efficiency and overall ent customer groups. For us, this has meant the develop- competitiveness of our customers’ operations. Our ment of new, customer-driven know-how alongside the important sustainability-related goals include reducing traditional product- and technology-centric know-how. the amount of energy, water and raw materials needed There isn’t just one correct way of producing services; in our customers’ processes and the amount of waste the solutions are developed partly based on the needs generated. Optimizing the servicing and maintenance of of each customer. production lines lengthens their useful life. At the same time, we improve their cost- and eco-efficiency. The New service concepts for the needs of services business is an integral part of our eco-efficient different customer segments solutions as well. Every day we receive plenty of feedback from customers through our comprehensive and global sales and cus- Examples of service packages tomer service network. A continuous dialogue with our customers makes it possible to identify the development Level 1 areas in different technologies and to take corrective t The customer is responsible for the productivity action. and maintenance of its machines, equipment and The billing for our service agreements is often based processes. on wear or spare parts sold, number of hours worked or, t Metso helps in maintaining the productivity of the e.g., tons produced. Our aim is to make more and more customer’s machines, equipment and processes. service agreements that target on the production reli- ability of the equipment or production plant or the qual- Level 2 ity of the end product. In these agreements, the benefits t The customer is responsible for the productivity and also the risk related to plant performance are shared and maintenance of its machines, equipment and between us and the customer. Right now, these types processes. of agreements represent only a small fraction of the t Metso helps in maintaining the productivity of the services business’ net sales, but we aim for increasing the customer’s machines, equipment and processes, in share of these agreements gradually as the scope of the improving maintenance quality and in conducting services business becomes more comprehensive. the supporting inspections. Developing service packages is part of the develop- ment of our services business. We have the most experi- Level 3 ence with this in Mining and Construction Technology. t The customer is responsible only for its capital assets, An expanded services portfolio is visible to our custom- i.e. machines, equipment and processes. ers through the improved quality of end products and t Metso offers full-scope maintenance services, which in the ability to optimize the performance of equipment include productivity optimization of the customer’s and entire processes. By packaging services, we can machine, equipment or process and end-product
Metso Annual Report www.metso.com SERVICES BUSINESS
quality improvements as well as Metso analysis- LINKS & based recommendations for increasing capacity and NOTES lowering production costs. Global presence, Level 4 p. – t The customer and Metso set shared targets for the Results development of the machine, equipment or process. through dialogue Read more about the development of our t The customer and Metso work together at the cus- services business in tomer’s site. in the Board of t Metso is responsible for the productivity and mainte- Directors’ Report, Collaboration in challenging p. – nance of the machines, equipment and processes as times boosts competiveness well as management of capital assets. Figures, p. – t New technology solutions as a part of machine, Mike Edwards, Senior Vice President, Pulp and Paper equipment or process development. Manufacturing, Domtar, and Jukka Tiitinen, President, North America, Paper and Fiber Technology, Metso, Presence close to customers talked about service cooperation in the pulp and In order to serve our customers well, we must operate paper industry. close enough to customer production plants, and our – Mike Edwards (ME): The benefits of a close partner- personnel must be readily available. We have strength- ship are visible in a challenging economic situation. Our ened our local presence by building our service center relationship with Metso made it possible to work to- network, and we will continue this development work gether to develop a major project at our Plymouth mill also in the years ahead. in a timely manner. The trust and a common philosophy In October we opened our third service center in on how we work together allowed us to move quickly in China serving the pulp and paper industry. The new developing the project and to minimize pre-engineer- center is located in Zibo, Shandong Province, and it ing and the overall completion time. employs maintenance professionals. The center – Jukka Tiitinen (JT): We share a history that goes back offers machine maintenance and process development several decades and provides the foundation for today’s services in North China. collaboration. Our first service center in China was opened in Wuxi, – ME: The relationship has strengthened over time due Jiangsu Province, in . The expansion of the center in to a number of factors, a major one being the willing- doubled its roll service capacity, and by Septem- ness of both parties to take some calculated risk in ber it had serviced , rolls. In January we implementing leading-edge technology. opened our second service center in China, in Guang- – JT: The most valuable thing is achieved when we can zhou, Guangdong Province, serving the pulp and paper provide services and equipment that contribute to your industry in South China. continued success as a recognized sustainable paper company. Our network of service centers and our production – ME: must work together so that our customers receive the The relationship provides Domtar with the spare and wear parts they need for their processes at the necessary engineering expertise and helps our overall cost-competitive position. Our end customers benefit, right time. In September we acquired the Prerov too, as we have the ability to bring projects up on time factory in the Czech Republic. The factory, which manu- as planned and to meet product commitments. Having factures and supplies wear parts for our mining and access to the latest technology helps us maintain com- construction industry customers operating in Central petitiveness in quality and costs. and East Europe, strengthens our ability to deliver wear parts fast.
www.metso.com Metso Annual Report ENVIRONMENTAL SOLUTIONS
Environmental solutions
Results through cooperation
Bioboiler plant improved air quality and created new jobs
Residents of Facture, a city in southwest France, have been breathing cleaner air since October 2010. A biomass-fired combined heat and power plant, one of Europe’s largest and representing Metso’s latest tech- nology, was commissioned at the local Smurfit Kappa paper mill. The plant’s dust and nitrogen oxide emissions are significantly lower compared to those of the old grate boiler plant. The plant is fueled with bark from the mill and forest residue collected from neighboring areas. Collecting the forest residue has created new jobs for the local people. Owned by Dalkia, the plant generates steam for the mill and electricity for the national grid. The investment is the largest in France’s national green energy program, which aims to reduce carbon dioxide emissions and to curb climate change. Metso supplied the plant with the process equip- ment, from fuel handling systems and biomass boiler all the way to flue-gas cleaning and the complete automa- tion for the plant. The project was implemented in good collaboration, again demonstrating our strong know- how in the growing bioenergy markets.
Metso Annual Report www.metso.com ENVIRONMENTAL SOLUTIONS
www.metso.com Metso Annual Report ENVIRONMENTAL SOLUTIONS Strategic theme:
Environmental solutions
We offer products and services that reduce Climate targets increase demand for bioenergy solutions the environmental load and improve the qual- Our bioenergy know-how is a significant competitive ity of our customers’ operations. We carry out factor when the use of renewable energy is increased to achieve climate targets around the world. For example, research and development in cooperation with the EU is aiming for percent of its energy to come customers and leading research institutes. We from renewable sources by . And elsewhere in the world, similar types of new regulations are accelerating work together to develop, for example, new the development. technology for biomass and waste-based ener- We have comprehensive know-how with a variety of challenging fuels used in energy production: fuels such gy solutions. We also aim to further strengthen as by-products from the forest industry and agricul- the collaboration between our different busi- ture as well as energy crops and municipal waste. Our strength is our ability to supply comprehensive solutions nesses in the development of solutions advanc- for biomass and waste combustion. Those include the ing sustainability. reception and handling of fuel, the boiler plant, the flue-gas cleaning system, and complete power plant automation and life-cycle services to ensure the efficient operation of the plant. The goal of the Metso Bioenergy Our eco-efficient solutions and products are related Solutions program, which combines know-how from our primarily to renewable energy sources, the material and different businesses, is to find ways to better utilize our energy efficiency of production processes, recycling, bioenergy-related know-how. the efficient utilization of raw materials, conserving Bioenergy production is most economical and most water, the reduction of emissions, dust and noise, and efficient when implemented locally; however, biomass the optimization of processes. Process optimization as supplies are not consistently available everywhere in the well as wear and spare parts and maintenance services world. The bioenergy solutions under development will support the minimization of the environmental impacts maximize the energy value of the biomass and enable of products throughout their life cycle. bio-based fuels to be transported longer distances. Our goal is production processes to be as eco-effi- Biomass is organic matter used as a renewable fuel, e.g. cient as possible, both in our own and in our customers’ wood and agro-biomass. Biofuels, like biogas and bio-oil, production plants. Environmental impacts occur mainly are fuels that have been refined from biomass. in the use of machinery and equipment in customer pro- There are several ways of using biomass in energy duction processes. Significant results in reducing green- production. In addition to new combustion solutions, house gases, for instance, are achieved more quickly by the biomass handling processes under development can developing solutions with lower emissions and higher produce products with greater added value. They can be energy efficiency for the industries generating the big- used either as fuels in energy production or as raw materi- gest emissions and consuming the most energy. als in various chemical processes. Expanding the end uses Our eco-efficient solutions are not a separate busi- for biomass creates demand for new technologies. ness; they are a natural outcome of the overall solutions We are developing the mechanical handling of biofu- that stems from our customers’ needs. We believe that els, the equipment used in the handling process and the environmental technology offers us significant growth automation. There are already industrial-scale projects opportunities in the future. for the gasification of biomass and waste. Gasification of biomass produces gas that can be used in place of or alongside fossil fuels like oil or natural gas. Bio-oil production through pyrolysis and the produc- tion of lignin pellets are in the pilot phase. In pyrolysis,
Metso Annual Report www.metso.com ENVIRONMENTAL SOLUTIONS
OUR AMBITION: Continuous development of environmental solutions
biomass is distilled with heat to separate an oil-like end recycling systems reduce the use of water, wood, metals product. We are also exploring biomass pelletizing in and aggregates, for example. Increasing the efficiency of which biomass is crushed, dried and compressed into industrial and household waste processing can reduce easy-to-handle biopellets for fuel. Our research is also the amount of waste ending up in landfills and decrease focusing on biocoal production. the environmental load caused by waste. We are the leading supplier of mid-range and heavy- Energy and material-efficient solutions duty equipment and comprehensive solutions in metal save costs and reduce emissions recycling. The shears, balers, crushers and other metal The investments our customers make in energy effi- recycling equipment we have delivered account for ciency have a direct impact on their operating costs and about percent of the world’s scrap metal handling eco-efficiency. With energy efficiency improvements, our capacity. The use of recycled metal in steel production customers can lower their energy costs and reduce their significantly reduces the energy need in the steel-mak- CO2 emissions. ing process and the emissions into the environment. We We offer our mining and construction industry supply equipment and plants also for the processing of customers process design and optimization, automa- solid and other municipal waste. tion, wear and spare parts and maintenance services. An optimized crushing-grinding process design can significantly improve a mine’s energy efficiency. With the solutions we have developed for mobile crushing, screening and conveyors, crushing can take place on site at the bottom of a quarry or close to a construction site, thereby decreasing emissions and dust, lowering energy consumption and improving work safety. Our technologies in pulp and paper production cover all sub-areas, from wood handling to paper and board production. Our automation and control systems enhance process utilization and runnability, while at the same time improving energy and material-efficiency. Also the supply of clean water is a global challenge. We have developed solutions to significantly reduce water consumption in pulp and paper manufacturing pro- cesses and to reuse the process waters more effectively. We work with our customers to find the best ways ENERGY EFFICIENCY to extend the life cycle of their production processes and thus improve their eco-efficiency. The solutions Energy efficiency is defined as the ratio between can be used e.g. to upgrade old technology to meet a certain product and service and the amount new environmental regulations. The broad selection of energy used to produce it. Favorable energy of special applications for process automation enables efficiency can come from small, continuous accurate monitoring and control of emissions levels and improvements as well as from radical technologi- environmental reporting. cal innovations. As energy efficiency evolves over time, the energy efficiency of solutions is meas- From the recycling of scrap metal ured in relation to a general benchmark level. to the handling of municipal waste The benchmark level is taken from the technol- Restrictions on the use of natural resources and tougher ogy currently in use and from the best available legislation are increasing the use of solutions that im- technology. prove energy efficiency and promote recycling. Efficient www.metso.com Metso Annual Report ENVIRONMENTAL SOLUTIONS
Strategy supporting research and development In our research and development activities we focus on many important areas of sustainability, such as energy- and raw materials-efficiency, the utilization of renewable raw materials, advanced process control technology and new solutions for the services business. In our R&D Results expenditure, including industrial property rights, totaled through cooperation EUR million (EUR million), i.e. . percent (.%) of our net sales. In we launched the Metso Stimulus program to accelerate strategically important long-term research Finnish-Chinese product develop- and development projects. The purpose of the program is to support long-term R&D activities by allocating ment benefits the scientific commu- funding to projects that support the environmental and nity as well as Metso services business in particular. In R&D we network with customers, research facili- ties and universities. The universities we have the most ”Metso is an important partner for Aalto University collaboration with are in Finland, Sweden, the United Design Factory. We have engaged in collaboration States, China and Brazil. Our partners include Luleå in Finland for years. Metso is one of the first Finnish University of Technology in Sweden, Aalto University in Finland, Massachusetts Institute of Technology (MIT), companies to partner with Aalto-Tongji Design Fac- Georgia Institute of Technology and North Carolina tory,” says Project Manager Viljami Lyytikäinen from Technical University in the United States, Facens - Engi- Aalto University. neering University of Sorocaba in Brazil, and Beijing Uni- Aalto University is an internationally renowned versity of Science and Technology, Shanghai Dazhong science and art community combining technology, Technical School, Nanjing Forestry University and South China University in China. business and industrial design. Diversity is represented Our R&D Center in Tampere, Finland, is researching through e.g. Design Factories offering researchers, stu- the production of bio-oil in collaboration with the VTT dents and private companies a new and open research Technical Research Centre of Finland, the energy com- and learning environment for product development. pany Fortum and the forest products company UPM. Aalto-Tongji Design Factory operates in Shanghai The goal is to use forest residue-based bio-oil to develop a considerable alternative to the traditional light and at Tongji University, which is the most renowned in heavy fuel oils, which generate carbon dioxide emis- China in urban design and architecture. Metso and the sions. The project is combining pyrolysis with fluidized university have launched a design-focused project, bed combustion technology; Metso is among the world- in which a team of Metso employees and students is leading experts in such boiler technology. in constant interaction. The goal is to develop ideas At the end of we started collaboration with the Swedish Bio Energy Development North AB to develop upon which to build innovations and to learn about torrefaction. The goal is to install an industrial-scale the Chinese culture, people and social environment development unit in Örnsköldsvik, Sweden, for the tor- from a design and architectural perspective. refaction of wood biomasses and residues from the ag- ricultural sector. Torrefaction is a mild pyrolysis process, in which “green coal” is produced from biomass. Green coal is a sustainable fuel that can be transported long
Metso Annual Report www.metso.com ENVIRONMENTAL SOLUTIONS
Research and development expenditure LINKS (including IPR expenses) & NOTES EUR million Megatrends, p. – Results Figures, p. – through dialogue Additional informa- tion about environ- mental responsibility Open dialogue between in our sustainability online publication www.metso.com/ Metso and suppliers pro- sustainabilityresults motes sustainability Kalle Reponen, Senior Vice President, Strategy and M&A, Metso Group, and Olli Hyvärinen, Senior Vice President, Procurement, Paper business line, initiated a dialogue within goods suppliers about promoting distances and will play an important role as a substitute sustainability. for fossil coal in power generation and gasification processes. – Kalle Reponen (KR): We can better promote sustain- High-quality design is an important part of our R&D ability by involving our supply chain and by offering activities. Our design is customer- and user-driven, them support. We must be able to talk about important competitive, environmentally and socially responsible, issues openly and to explore solutions together. Col- laboration and an open dialogue are a must in making and has a recognizable visual identity. Consistent with progress in this issue. An excellent tool for this is the our design principles, we aim to make purpose-oriented sustainability criteria for suppliers, launched in . and safe products that are based on customer needs – Olli Hyvärinen (OH): We have previously applied and improve our own and our customers’ competitive- ethically sustainable principles in our procurement, but ness and profitability. the common criteria now apply to all of our goods and services suppliers globally. The common criteria allow us to jointly support sustainability and share our experi- ences and views. – KR: In addition to environmental issues, the criteria are related to e.g. quality and occupational safety. They require our suppliers to comply with competition legis- lation and to offer a safe work environment. – OH: They help us at Metso to choose suppliers that endorse sustainability and to assess their quality during collaboration. It is about continuously paying attention to issues related to ethically sustainable operations. – KR: When all of us – Metso employees and suppliers alike – fully comprehend principles of sustainability, they will become an intrinsic part of our daily work, not just criteria that are part of some separate assessment process.
www.metso.com Metso Annual Report GLOBAL PRESENCE
Metso Annual Report www.metso.com GLOBAL PRESENCE
Global presence Results through cooperation
Health, safety and the environment in focus
Health, Safety and Environmental issues (HSE) are an in- tegral part of our operations. We aim to increase person- nel awareness and to build a systematic way of holding all accountable for safety. Metso Park, in Alwar, Rajasthan, India, has delivered good results. In 2010, there was only one incident creat- ing lost time and one minor incident. In most months, Metso Park reached our goal of zero accidents. Several HSE initiatives have been launched at Metso Park during the year. A 24/7 primary health care center was opened, visitors’ safety instructions were imple- mented and an internal HSE audit system was deployed. In addition, our employees have been involved in improving the safety of the manufacturing facilities. For example, hand rails have been installed, open vents and drain lines have been properly covered, and machine safety and the storage of highly flammable chemicals have been improved. At Metso Park we also pay attention to the environ- mental impact of our operations. Natural light is used to illuminate the plant, and energy efficient equipment with variable frequency drives and sensors is used in manufacturing. The site has an efficient sewage treat- ment plant, which prevents pollutants from being discharged into the environment and enables the use of treated water in gardening and flushing. In the picture: Raj Kumar, Kishor Kumar Verma, Sonu Kumar. Verma, Kishor Kumar In the picture: Raj Kumar,
www.metso.com Metso Annual Report GLOBAL PRESENCE Strategic theme:
Global presence
For Metso, global presence means that we can During the year we invested EUR million to strengthen our presence in emerging markets. In , tap into our operating environment in the best our total investments, excluding business acquisitions, possible way, and it contributes to our ability to were EUR million (EUR million), of which main- tenance investments accounted for percent, or EUR meet our customers’ needs. We aim to have a lo- million. cal presence in sales, product development and Global economic recovery strengthened in and the demand for our products and services turned research, engineering, procurement, production to growth. Our customers’ capacity utilization rates and the services business all over the world. increased with the improved economy. This had a posi- tive impact on the demand for our services business in particular, but also on equipment sales. Uncertainties related to our order backlog diminished as customers restarted their projects. Over the course of the year the uncertainties in the financial markets created by budget We serve our customers globally. We employ over , deficits in many European countries and in the United professionals e.g. in engineering, production, procure- States cast a shadow over the market recovery. However, ment, sales and the services business in over units this didn’t significantly impact the demand for our located in more than countries on all continents. We products and services; most of our customers’ confi- have customers in over countries in the mining, con- dence to invest in new and existing equipment bases struction, energy, recycling, pulp and paper industries. strengthened. We measure our success based on e.g. market share, i.e. how often our customers choose us as their partner Emerging markets and supplier. Our competitive strengths include our pro- In the upcoming years emerging markets will robustly found knowledge of markets and customer processes, grow their production capacities in all areas for which long-term customer relationships, an extensive installed Metso has a product offering. Today the demand for new equipment base, a competitive product and services equipment and processes is mainly in Asia, South and portfolio, and our global presence and ability to trans- Central America, Eastern Europe, Africa and the Middle form all of this into added value for our customers. East. In , all four BRIC countries (Brazil, Russia, India and China) were among the seven biggest countries in From equipment supplier to service provider terms of orders received. Emerging markets accounted Metso’s world is divided: the emphasis in developed for half of our net sales and percent of our new orders markets is on the services business for the installed equip- in . ment base, while the majority of sales of new equipment Economic growth in emerging markets is estimated and plant projects are in emerging markets. This means a to remain strong. The growing, young middle class is refocusing of resources: in developed markets we have ad- becoming more affluent and purchasing consumer justed our equipment and project business resources and goods; this translates to strong growth in the consump- have redirected them to the services business. At the same tion of various minerals, energy and packaging industry time, equipment- and project business-related know-how products. Emerging economies are investing strongly must be transferred to emerging markets while strength- in new transportation infrastructure, which is a basic ening our own resources there. Acquiring new competi- requisite for sustainable economic growth and a higher tors that crop up in emerging markets is an opportunity standard of living. Rapid growth areas include espe- to grow our presence and to add to a globally competitive cially India, China and Brazil, which have allocated a lot product portfolio. Correspondingly, acquiring companies of funds to build and improve road and other traffic with a service business focus in developed markets is one networks and infrastructure. There is also a big need way to support the implementation of our strategy. for infrastructure development in Eastern Europe and
Metso Annual Report www.metso.com GLOBAL PRESENCE
The Chinese markets for the Automation and Re- cycling businesses are growing. Last year we delivered several extensive automation packages with flow control equipment for paper, board and pulp mills. However, we are expecting the most sales growth from OUR AMBITION: the Asian energy, oil and gas industries. Metso’s biggest investment in China recently, the technology center Strong growth specializing in automation and flow control solutions, was inaugurated in May in Shanghai. The technology center strengthens our customer service especially in close to China and the Asia-Pacific region. The center’s multi- functional facilities, like the modern valve factory, the customers assembly unit and distribution center, and the facility for testing automation systems, provide good op- portunities to develop automation solutions. The new factory manufactures products and components also for Metso’s other valve factories. We are the leading sup- plier of automation for China’s pulp and paper industry. We also have a good market position in other process Southeast Asia. The focus of new mining and construc- industry sectors, like the oil and gas industry, from tion industry investments has shifted to emerging which we expect growing demand. markets that are rich in natural resources. In developed China has committed to significantly reducing markets the demand outlook also for the energy indus- carbon dioxide emissions in upcoming years and is try – including energy production based on renewable pursuing its targets by encouraging different industries, fuels and for recycling technology related to waste like cement production, to reduce their carbon footprint. materials – is promising. Urbanization is generating bigger volumes of waste. In The number of our personnel working in emerging China, our Recycling business serves solid waste- and markets grew by , and its share of total personnel biomass-fired power plants and refuse-derived fuel grew to percent (%). (RDF) production plants. Our customers also include companies specializing in the reprocessing of recycled Asia metals. Last year we delivered several pre-shredders and Our net sales in Asia increased by percent and ac- scrap metal recycling stations to China. The Chinese gov- counted for percent of Metso’s net sales. About ernment is encouraging investments in metal recycling percent of our employees work in Asia. equipment to reduce the metal industry’s dependency on scrap metal imported from elsewhere. China We delivered our first rock crusher to China back In , China was the most significant country for in the s. China’s mining and construction industry Metso, measured in terms of the value of orders received has grown briskly. Today we have close to Metso (EUR million), and net sales (EUR million). We employees in China serving the mining and steel employ a total of about , people in our local industry, and supplying equipment for the produc- sales, production and services units in China. tion of aggregates at quarries and directly to e.g. port, China is the main market area for new paper and terminal, road and dam construction sites. Our modern board lines. In demand in China was good; we crusher factory in Tianjin employs over people. The received orders from there for ten new paper and board factory’s production includes a comprehensive selection machines and three pulp lines. We are the leading West- of crusher models, and it serves the Chinese and Asian ern and local supplier in the paper and board machine markets as well as our customers globally. Mining indus- markets in China. We delivered the first paper machine try customers account for the majority of the Mining and to China in the s, and in we established a joint Construction Technology segment’s business in China. venture that started the local manufacturing of Metso’s In we received an order for three grinding mills and paper machines. Our reliable references and strong the required installation and start-up services for TISCO’s brand give us an edge in these markets where the cus- new iron-ore processing plant. TISCO is China’s largest tomer often expects its partners to operate clearly more producer of stainless steel. quickly than in Europe. We have systematically developed our local presence India in China. In we opened our third service center We have operated in India since , and today we have serving the pulp and paper industry in Zibo, Shandong a total of nine units and approximately employees in Province. It offers machinery maintenance and process the country. The mining and construction industry is our development services especially in Northern China. The fastest growing customer segment in India. We are the growing markets for paper machine fabrics are served leading supplier of mobile crushers and screens in India. by our factory for wet and dry filtration applications in India is quickly gaining prosperity. It is the world’s Tianjin and a filter factory in Shanghai. China’s pulp and second most populated country and will be an increas- paper industry has made substantial investments over ingly significant market for Metso. Environmental issues, the past ten years. We have been a partner in many of the rapid growth in the need for energy and transporta- these projects and we are currently the leading technol- tion infrastructure will become increasingly bigger chal- ogy supplier in the sector. lenges, offering business opportunities for Metso. www.metso.com Metso Annual Report GLOBAL PRESENCE
Net sales growth by area Personnel growth by area EUR million
Finland − 10% Finland 0% Other Nordic countries − 9% Other Nordic countries − 4% Western Europe − 18% Western Europe + 3% North America + 19% North America + 2% Other developed countries + 21% Other developed countries + 5% Eastern Europe + 15% Eastern Europe + 63% South and Central America + 31% South and Central America + 21% Asia-Pacifi c* + 55% Asia-Pacifi c* + 10% Other emerging countries − 23% Other emerging countries + 3% , , , , , , ,
*excl. Japan, Australia *excl. Japan, Australia and New Zealand and New Zealand
Our Mining and Construction Technology operates a from Cheng Loong Corporation for their new container- crusher factory in Bawal, a foundry in Ahmedabad, and board production line at the Hou-Li paper mill in Taiwan. regional sales and service units in New Delhi, Bangalore, Kolkata, Thane, Hyderabad and Chennai. In March, the South and Central America first phase of our largest single industrial investment so South and Central America accounted for percent of far, Metso Park in Alvar, was completed; encouraged by our orders received. Brazil is by far our biggest market the favorable market development, phase two of the in this region. Last year it accounted for percent of all investment has been started. The industrial park will our orders received, and was the third most significant feature production, office and engineering facilities as country for Metso, measured in terms of the value of well as a logistics and training center. The investment orders received (EUR million). Measured in terms of significantly strengthens Metso’s presence and will cater net sales, Brazil was also our third largest country (EUR to the rapid growth in demand for mining and construc- million). The number of our personnel increased by tion products and services in India and other quickly in South and Central America, particularly because growing markets in Asia-Pacific. At the facility we also of the increased demand in the mining business. At the manufacture components for our assembly units operat- end of the year, we had a total of , employees in the ing in emerging markets as well as some products for region, , of them in Brazil. global markets. In recent years, Brazil, Chile, Peru and Mexico have Our joint venture with our Indian collaboration become leading mining industry countries in the partner focuses on power industry solutions and sup- world, and our deliveries to the mining industry have plies engineering services for our other power industry grown rapidly in these countries. We have increased our units globally. The unit, operating in Chennai, has also presence, particularly in the services business, close to designed a recovery boiler solution for the Southeast the big mines, and we have won several major service Asian markets in particular; we have already received agreements for mines in recent years. The growth in two orders. the services business has had a significant effect on the Our local resources in India also serve the pulp increase in the amount of our personnel. and paper industry and the fast-growing oil, gas and We have been operating in Brazil for nearly years. petrochemical industry, for which we have delivered e.g. We have an extensive local business network and our extensive flow control solutions customers operate in several different industries. In addi- tion to the mining industry, e.g. the build-up of the trans- Rest of Asia portation infrastructure in Brazil is continuing strongly, Rapid urbanization is creating sizable infrastructure which supports the growth in demand for our construc- development needs in Southeast Asia. Indonesia is Asia’s tion equipment. Sizable investments by the Brazilian oil third-largest growing economy after China and India, industry have offered significant opportunities for our and it has a major pulp and mining industry. Indonesia Automation solutions. South America, particularly Brazil, is the world’s second-biggest producer county of tin, the is on its way to becoming the world’s leading supplier third biggest of copper, and the fourth biggest of nickel. of pulp, and there are several pulp mill projects planned Various construction and infrastructure development to be launched in the region in upcoming years. We also projects are driving the demand for our equipment and serve the country’s paper and tissue industry. Among services in places like Thailand, Vietnam, the Philip- the most significant orders we received last year, was the pines, South Korea, Malaysia and the SAARC countries order for MDF board manufacturing equipment from (Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan the Brazilian company Berneck in Curitibanos, the order and Sri Lanka). The regional demand for mining and con- for a ball mill and related equipment and services from struction industry products is good, particularly for our Kinross Gold Corporation for its gold mine in Paracatu, mobile crushers and stationary crushing plants as well and service and restoration of one of Celulosa Arauco as our various pumps for use in the mining industry. In y Constitución’s pulp mill recovery boilers, which was , we received an order for board making technology damaged during the February earthquake in Chile.
Metso Annual Report www.metso.com GLOBAL PRESENCE
Purchases by area Wages and salaries by area Purchases EUR , million (: EUR , million) Wages and salaries EUR , million (: EUR million)
Finland % (%) Finland % (%) Other Nordic countries % (%) Other Nordic countries % (%) Other European Other European countries % (%) countries % (%) North America % (%) North America % (%) South and Central South and Central America % (%) America % (%) Asia-Pacifi c % (%) Asia-Pacifi c % (%) Other countries % (%) Africa and Middle East % (%)
Towards the end of the year, our Power business received Eastern Europe an order for a recovery boiler and evaporation plant for Eastern Europe is becoming an increasingly significant Eldorado Celulose e Papel’s new pulp mill in Brazil. area for our business. In the long-term, infrastructure de- In Araucaria, Parana state, Brazil, we started con- velopment in transportation and energy, local utilization struction work on a new facility serving the pulping of natural resources in the mining and pulp industries, and power generation industries. The facility will be and various projects supporting sustainability will completed by the end of , and at that time all Metso’s increase demand for our products. functions from Curitiba will move into the new premises. Of the Eastern European countries, Russia is Metso’s The growing demand for maintenance services in the most significant market, and the outlook there has pulp and power generation industries requires a more developed favorably. Orders received from Russia in comprehensive local presence and service capacity. accounted for five percent of our total order intake. We have operated on the Russian markets for about Africa and the Middle East years, and we have sales and service offices around Our strongest customer industries in Africa and the Mid- the country. In , we signed an agreement for the dle East are the mining and construction industries, but delivery of a complete fiber line, the first in Russia in there has been strong growth also in our valve deliver- years. The fiber line will be delivered to Ilim Group, which ies, particularly to oil, gas and petrochemical plants in is one of Russia’s leading pulp and paper manufacturers. the Middle East. In , we received an order for special When commissioned, the Bratsk mill will be one of the valves from the South Korean company GS Engineer- world’s biggest and most modern softwood pulp plants. ing and Construction for a plant operating in United Also the Mining and Construction Tecnhology segment’s Arab Emirates. The special valves, for use at extremely orders clearly grew during the year; and there are several low temperatures and in gas drying processes, are for a big mining and transportation infrastructure projects in liquefied natural gas plant. the planning stage in Russia. Among the other signifi- The continent of Africa holds a significant share cant orders we received from Eastern Europe was the of the world’s known mineral resources, such as gold, order to deliver a complete tissue production line with platinum, chromium and diamonds. A substantial share an extensive automation package for the AK GIDA SAN of the world’s bauxite, cobalt, phosphate and uranium ve TİC company in Turkey and an order to supply a lime deposits is also found in Africa. calcining system to OJSC Novolipetsk Steel in Russia. In South Africa, we have sales and services units serv- The number of our employees in Eastern Europe was ing our mining and construction customers. In addition, , (). Our orders received from the area totaled EUR we have a factory manufacturing rubber-based wear million (EUR million), or nine percent (%) of our parts, a factory manufacturing crushing and screen- total order intake. ing equipment and pumps, and a manganese foundry producing wear parts for crushers. Our other sites serv- Developed markets ing the mining industry in the region are the sales and Our traditional markets are the developed markets, i.e. services units located in Ghana, Zambia and Zimbabwe. Western and Northern Europe, North America, Japan, Our Automation business has sales and maintenance Australia and New Zealand. The focus in these markets units both in South Africa and the Middle East. We also is on the services business and on modernization of the have a sales unit for our paper and pulp customers along existing equipment base. with a joint venture specializing in maintenance services in South Africa. Western and Northern Europe The number of our personnel in Africa and the Mid- Our orders received from Western and Northern Europe dle East at the end of the year was , (,). Our orders amounted to EUR , million (EUR , million), or received from the area totaled EUR million (EUR percent (%) of our total order intake. The increased million), or five percent (%) of our total order intake. budget deficits of several European countries generated uncertainty in Europe in , which slowed the market www.metso.com Metso Annual Report GLOBAL PRESENCE
Metso in emerging and developed markets
51% 36%
2,176 1,968
28%
1,576
12% 26% 17% 521 1,143 920 2001 2010 Europe 2001 2010 Asia-Pacific
2001 2010
North America 4% 5% 16% 66% 56% 3% 293 14% 143 19% 12% 2001 2010 8% 795 Africa and Middle East
360 2001 2010 5% 5% South and Central America
6% 11%
Developed markets recovery from the global downturn. However, our cus- In Tampere, Finland, we relocated more than , Emerging markets tomers’ capacity utilization rates clearly improved, which energy and environmental technology experts into the Metso’s operating also impacted our services business favorably. We devel- same facility. The new unit is an internationally notable countries oped our services portfolio by acquiring web inspection cluster of boiler and automation expertise for bioenergy Net sales, and web break system business and rubber belt-related solutions. EUR million () business to complement our product and services offer- We are also establishing a production competence Net sales, EUR million () ing for the European pulp and paper industry. center in Tampere for Power business. The new compe- Share of Metso’s In Jyväskylä, Finland, we completed the upgrade of tence center will develop new and efficient boiler pro- net sales, % the Paper Technology Center’s second pilot machine. In duction technology and will support our global boiler Share of the total June we started construction work on a new factory in production network. amount of personnel Vantaa, Finland, that will manufacture special valves for In Germany, we sold our Flexowell conveyor belt , % demanding applications. Metso’s industrial valve pro- business to ContiTech Transportbandsysteme. Conveyor Share of the total amount of personnel duction in Finland and about Automation and Pow- belts and bulk material handling systems will continue , % er employees from the Helsinki area will move into the to be part of our offering to mining and construction new facility during the first half of . We have strong industry customers, but in the future we will procure know-how in Finland in the product development and them from our subcontractors. manufacturing of special valves for demanding applica- For the most part, in , we finished the capacity tions e.g. at oil refineries and energy production plants. adjustment measures that had been initiated in , The new facility will offer us even better opportunities to but a few measures were left for . They mainly develop product quality and delivery capacity. involved the valve supply center in Wittenheim, France, We continued boosting the efficiency of our produc- and the metal recycling business in Germany. tion network by centralizing the manufacturing of tube About percent (%) of our net sales and rolls and roll rubber covering in Finland to our Järvenpää percent (%) of our orders received came from Western factory and closing our Tampere and Oulu units. The and Northern Europe. About percent (%) of our start-up of the revamped production was preceded by employees work in Western and Northern Europe. a large-scale renovation of the premises in Järvenpää. Centralizing the manufacturing of tube rolls and rubber North America coverings to the same facility will cut transport costs, Metso has about , employees in North America. In shorten lead time and improve production efficiency. net sales in North America were EUR million
Metso Annual Report www.metso.com GLOBAL PRESENCE
(EUR million), representing percent (%) of our LINKS & total net sales. About percent (%) of our order intake NOTES comes from North America. The services business ac- counts for an increasing share of our business in North Megatrends, p. – America, and we have adjusted our resources and cost structure accordingly; in fact, our number of personnel Results Information about the through dialogue geographical break- in North America has been reduced by half during the down of our operations past ten years. The net sales of our services business has in the Figures section, tripled during the same period. About percent of our p. – employees are in North America. A well-managed supply Additional informa- The increased budget deficits also in the United chain benefits everybody tion about financial States created uncertainty, which slowed market responsibility in our recovery in . However, the increase in our custom- With the role of Asia growing, Ari Harmaala, President sustainability online ers’ capacity utilization rates had a favorable impact on of Metso Operations in China, and Sudhir Srivastava, publication Senior Vice President, Asia-Pacific, Mining and Con- www.metso.com/ development of our services business. sustainabilityresults A new facility for Mining and Construction Technol- struction Technology, discussed global supply chain ogy’s needs was taken into use in May in York, Pennsyl- management. The reporting princi- vania. The new facility supports our capacity to serve – ples of sustainability Ari Harmaala (AH): Today almost all raw materials, data are presented in mining industry customers both globally and regionally. components, production methods and services are our sustainability In line with our strategy, we aim to increase our available in China. As long as productivity exceeds costs, online publication services business; as part of this goal, we acquired the it is the place to manufacture and source products. www.metso.com/ sustainabilityresults services business of Wyesco of Louisiana in Louisiana, – Sudhir Srivastava (SS): India and China are markets United States. Wyesco of Louisiana has operated in with long-term potential, but they are also increas- the service business for over years and was Metso’s ingly important sourcing hubs. We have increased licensed repair facility for the repair of certain pulp our sourcing in Asia manifold and have expanded our mill components in North America. The acquisition manufacturing footprint. This has enabled us to improve complements our maintenance services, technology and competitiveness, especially locally but also on a global product portfolio for the region’s pulp industry. basis. – AH: We are building a world-class supplier base in Pacific region (Australia, Japan China. A real supply chain starts from engineering; and New Zealand) tailored customer needs are engineered to modular, lo- calized and standardized solutions. They are purchased Of the countries in the Pacific region, the demand in from audited suppliers or made by us. Australia in remained at a good level, particularly in – SS: The development of sourcing in India and China the mining industry. We received an order for two grind- has followed the same pattern. At first we just made ing mills and the related equipment for the Newcrest make-or-buy decisions but now we are also transfer- Cadia Valley gold mine. Newcrest is Australia’s largest ring responsibility in engineering and quality control to gold producer and among the world’s top ten mining those areas. Sourcing has been developed in standard companies. We also received an additional order for con- and customized offerings. tainerboard making technology from Amcor Packaging – AH: We gain by unifying knowledge, operations and for the containerboard line located in Sydney. volume purchases for Metso as a whole, as we have seen The number of our personnel in the Pacific region with castings and pressure vessel purchases in China. increased by people. Our orders received from the Our customers get high-quality Metso products at Pacific region amounted to EUR million (EUR mil- competitive prices. When deliveries from China remain lion), or five percent (%) of our total order intake. in Asia, also delivery times are shorter and the carbon footprint is smaller.
www.metso.com Metso Annual Report METSO PEOPLE Metso people
Metso people
Developing our human resource management Personnel by segment and investing in know-how strengthens our cor- Personnel , persons (: ,) porate culture and supports profitable growth. Mining and Construction We have adopted new leadership principles and Technology % (%) Energy and Environmental renewed our annual development review pro- Technology % (%) Paper and Fiber cess. We are also continuing efforts to promote Technology % (%) Group Head Offi ce an even better and safer work environment. and others % (%)
Leadership has a significant role in Metso’s success. in supervisory positions carried out and then reviewed To successfully implement our strategy, our leaders with their own supervisors as part of the development must be able to inspire Metso people in their work to review in autumn. The implementation of the leadership achieve both Metso’s as well as their personal develop- principles will continue in . ment goals. One of our central strengths is the exten- The renewal of the leadership principles is also part sive know-how of Metso’s employees in more than of the harmonization of Metso’s ways of operating. We countries; we are investing in the continuous mapping, take into consideration the special characteristics of dif- development and sharing of this know-how. ferent countries and cultures in the implementation of Our vision, mission and values guide the develop- the uniform ways of operating. ment of our personnel’s know-how and well-being and our work environment. We have defined the common Competence development and principles and practices supporting human resources training programs management in our HR policies. Continuous learning and development are an important SEE LINK 1 part of Metso’s development and culture. They also play a key role in ensuring our competitiveness. New leadership principles In we separated the development review and We continued the development of leadership in performance review that are part of the annual assess- and defined Metso’s leadership principles. The principles ment process from each other. This ensures that at least represent our shared view of what makes a Metso leader. one of the annual reviews focuses particularly on the Succeeding together requires good leaders who are employee’s development needs, both short-term and actively involved in the daily work. The new principles long-term. This in turn enables planning for the know- emphasize the fact that supervisors inspire, show how, knowledge and skills that will be needed in the employees the way forward, and create an atmosphere future in the different areas of our business and for the of trust and continuous learning. According to the correct way to develop these competences. principles, supervisors must clearly communicate the The performance review focuses on setting and individual- and team-level goals to each employee and achieving personal goals, whereas the development re- invest in employee development and coaching, while view focuses on development needs. With the develop- ensuring operational productivity. ment reviews we aim to ensure that we have a learning The new leadership principles were included in the organization and that we have competent and commit- renewal of the performance and development ted personnel. They also support employee career plan- review processes. The principles were first implemented ning, internal mobility, and the sharing of knowledge in the supervisors’ self-assessments, which all individuals within our organization.
Metso Annual Report www.metso.com METSO PEOPLE
In the picture from left to right: Patrick Minami- zaki, Viviane Franco, Ana Paula Pirez Costa, Guilherme Zanzarini, Rubens Aparecido Diniz, Camayosano Onofre.
The training programs in Metso’s international train- occupational health and safety, as well as employee LINKS & ing portfolio are important in developing leadership absence information are collected into the OHS Monitor. NOTES skills and know-how. In a total of () Metso Analyzing the information can prevent similar incidents employees spent a total of , (,) training days in throughout Metso. In factories, the system accelerates Metso’s vision, mis- our global training programs. In other training programs the procedures for reviewing accidents and dangerous sion and values, p. – supporting competence development, we continued situations. The standardized and comparable data also investing in the promotion of Metso-wide cooperation. facilitates safety communications. More information Our training expenses, excluding the wages and salaries The results of occupational health and safety work about sustainability of the participants, totaled EUR () million. and development measures that have been initiated are targets and achieve- ments, p. – reviewed regularly at follow-up meetings at various lev- Job satisfaction and els of the organization and also quarterly by the Metso Figures, p. – work well-being development projects Executive Team and Board. In the long run, our target Our TellUs employee survey provides feedback on how is for zero work injuries. In our lost time incident More informati- on about social Metso people perceive our company and their own frequency (LTIF) was .. Our short-term LTIF target is responsibility, human work community. The survey is a tool for the long-term less than in every Metso unit by . LTIF reflects the resources manage- development of the organization; it can be used to spark number of incidents resulting in an absence of at least ment principles and discussions and to generate new ideas and concrete one workday per million hours worked. occupational safety in our sustainability improvements within the work community. SEE LINK 2 online publication The last Metso-wide TellUs survey was conducted www.metso.com/ in late . In , based on its results, team-specific Personnel structure sustainabilityresults development projects and action plans have been initi- There was a clear turnaround to growth in our number The reporting princi- ated to help improve the work atmosphere and to clarify of personnel in . At the end of we had a total of ples of sustainability resourcing in teams. , (,) employees. More than half of the person- data are presented nel increase came through acquisitions and the rest in our sustainability Work on occupational health and safety organically, mainly in emerging markets. The share of online publication www.metso.com/ Safety is a leadership issue at Metso and an indication our employees in emerging markets in proportion to our sustainabilityresults of work quality. Our occupational safety management is total number of personnel was () percent. Women built on a platform of employee orientation, continuous accounted for () percent of our workforce. training, risk assessment related to the workplace and Of our personnel, percent were employed full- the work, measures to reduce and eliminate risks when time, percent were working part-time, and the propor- possible and systematic monitoring of local legislation. tion of trainees was one percent. Permanent employees, Every Metso employee plays a role in workplace safety. both full-time and part-time, made up () percent of We develop safety in the same way as other factors the personnel structure. The overall employee departure related to operational quality. Our Metso-wide occupa- turnover rate was () percent. The voluntary turnover tional health and safety policy supports the develop- rate was . (.). The average age of employees was ment of a safe, healthy and well-tended work environ- years and the average length of service was approxi- ment. Every Metso employee has the right to work in mately years. The countries with the most Metso em- a safe manner and, at the same time, an obligation to ployees were Finland, China, the United States, Sweden comply with work safety guidelines. We aim to prevent and Brazil. These five countries employed percent of accidents and injuries through operating guidelines and Metso’s total workforce. measures that reduce risks in the work environment. In we continued the global roll-out of our new occupational health and safety monitoring system, OHS Monitor; , Metso employees were within the sphere of the monitoring. All significant accidents, near-miss situations and observed risks related to www.metso.com Metso Annual Report METSO PEOPLE In the picture: Martin Brorson. Ridderheim, Pia Results through cooperation
Development review supports career planning neering, Services business, both from Power business line, conducted the renewed devel- In 2010 we separated the development review opment review in autumn 2010. Both see it as from the performance review, bringing an op- supportive of their own goals. portunity for more in-depth discussion about “It’s a good opportunity to really sit down professional development. with every employee and discuss their indi- “The new format is extensive; thorough vidual role in the light of Metso’s strategy and preparation is a prerequisite for a successful dis- values,” Martin says. cussion. The stronger focus on leadership issues Pia also stresses the importance of taking per- supports both our business goals as well as em- sonal responsibility for one’s own development. ployee motivation,” says Ulla Partanen, Director, “A self-assessment before the development Service Solutions, Automation business line. review gives you a chance to think about Martin Ridderheim, Vice President, Services where you want to go; the discussion gives business, and Pia Brorson, Manager, Engi- you the opportunity to express it,” she says.
Metso Annual Report www.metso.com TARGETS AND ACHIEVEMENTS Targets and achievements
Factors that affected our operations in 2010
Strengthening economic growth Services business growth and polarization of growth Industry’s utilization rates were up and The global economy gradually gained production volumes grew even faster than strength during the year. In emerging mar- the global national product. This and the kets, economic growth was strong and the improved profitability of the customer base downturn didn’t seem to have much impact boosted demand for spare and wear parts as 1 on economic development. In Europe and 4 well as investments in repairs, optimizations North America, recovery was slow, and the and rebuilds that had been postponed dur- big budget deficits in several countries ing the difficult times. fueled uncertainty both in the real economy and in the financial markets.
Volatility in the currency Strengthening upswing and financial markets in the global mining industry Substantial regional differences in economic The continued strong growth of emerging growth and the continued volatility in the markets increased the demand for minerals financial markets led to strong changes in and lifted mineral prices. Several mining currency exchange rates, which added to companies announced sizable new mining 2 uncertainty about the global economy and 5 projects. At the same time, the depletion of delayed investment decisions particularly in mineral resources of existing mines requires Europe. major investments to increase the capacity at these mines.
Growing inflation pressures Environment The continued strong economic growth There is consensus around the world about in emerging markets and the globally the need for eco-efficient technology to strengthened demand for raw materials mitigate climate change. Even so, the lack fueled inflation pressures, particularly in of political decision-making related to e.g. emerging markets, and, in the second half renewable energy is slowing the develop- 3 of the year, also in other parts of the world. 6 ment of the markets. Wage inflation of the educated workforce in emerging markets has reached a high level. Many raw material prices approached the peak levels seen in –.
www.metso.com Metso Annual Report TARGETS AND ACHIEVEMENTS
Financial targets GROWTH PROFITABILITY
Net sales growth Growth in EBITA* EBITA before non-recurring items EBITA-%* > 12% EUR million >% % ROCE-%** > 25% DESCRIPTION DESCRIPTION Average annual net sales growth of more Target is to improve EBITA* annually. than 10%. Target is for EBITA* to exceed 12% of net Growth will be achieved both organically sales. and through value-enhancing, complemen- Target is to exceed a 25% return on capital tary acquisitions. % of net sales employed (ROCE-%**).
FINANCIAL DEVELOPMENT IN 2010 FINANCIAL DEVELOPMENT IN 2010 Net sales increased by 11%. Return on capital employed EBITA* improved by 23 percent and was EUR % 491 million. Net sales EBITA* was 8.8% of net sales. EUR million , % ROCE** was 13.5%. , , * before non-recurring items ** before taxes , , , - , - - Growth, %
Metso Annual Report www.metso.com TARGETS AND ACHIEVEMENTS
CASH FLOW DIVIDEND CAPITAL STRUCTURE
Cash conversion Annual dividend Credit rating
> % % SOLID of earnings per share
DESCRIPTION DESCRIPTION DESCRIPTION Cash conversion (free cash flow/profit) to Target is to pay at least 50% of annual Target is to maintain a solid investment exceed 100%. earnings per share as a dividend or in grade credit rating. The key financial other forms of repatriation of capital (share indicators, capital structure and cash flow, FINANCIAL DEVELOPMENT IN 2010 buybacks or redemptions). support a solid investment grade in credit rating. Cash conversion was 169%. FINANCIAL DEVELOPMENT IN 2010 FINANCIAL DEVELOPMENT IN 2010 Metso’s Board of Directors proposes a divi- dend of EUR 1.55 per share for 2010, cor- Credit rating: Solid responding to 91% of earnings per share. Moody’s, September 20, 2010: Baa2 Cash conversion Earnings per share Outlook: stable % and dividend per share Standard & Poor’s August 12, 2010: BBB EUR Outlook: stable .
. . * Earnings per share Dividend per share Minimum dividend per dividend policy (at least % of EPS) *Board’s proposal
www.metso.com Metso Annual Report TARGETS AND ACHIEVEMENTS
MANAGEMENT FINANCIAL TARGETS ANALYSIS
Our operating environment recovered sig- In August we set our long-term terials and water, and those that use more nificantly in , and we were again able to financial targets. Last year, we achieved recycled materials and generate less harm- turn our focus to growth and our long-term our targets in net sales growth, profitability ful emissions. We are increasing our research goals. In the previous year we had a strong improvement (measured in euros), cash flow and product development investments in focus on securing competitiveness and flex- and capital structure. environmental solutions and systematically ibility and on profitability and cash flow. The proposed dividend exceeds our divi- developing our Energy and Environmental The gradual economic growth that dend policy. Achieving our targets in rela- Technology offering. began in improved our operating tive profitability (EBITA as a % of net sales) Our strong global presence close to cus- conditions. We made good progress in the and return on capital employed (ROCE-%) tomers and our more robust investments to goals we had set for the strategy themes requires a strong demand environment. develop the services business offer growth important for us, i.e. increasing the services Both key figures improved, but still fell short opportunities in all our businesses. business and eco-efficient solutions and of our targets. We believe that we have a In the long-term, we estimated that strengthening our presence in emerging solid foundation upon which to achieve our Metso’s growth will come particularly from markets. We also continued developing our long-term targets as demand is restored to Mining and Construction Technology and operations towards our long-term financial the good level seen in –. from Energy and Environmental Technology. targets. The following is a review of the We are pursuing mainly organic growth, be- actions we have taken to achieve these Growth cause it has the lowest risk potential. At the goals. We have also elevated the prevention Our goal is for sustainable profitable growth. same time, we are also exploring business of work injuries and the reduction of our The global megatrends offer us excellent acquisition opportunities that comple- energy consumption to Metso-wide sustain- opportunities for growth. Economic growth ment our current product and services ability goals. in emerging markets and urbanization offering and geographical presence, and are increasing infrastructure investments create added value for our customers and in transportation networks, construction shareholders. and energy capacity. This is boosting the demand for a variety of metals and minerals, Profitability and thus necessitating increases in mining Our profitability in recent years has im- capacity and metal recycling solutions proved by – percentage points compared globally. The rapid growth of a middle class to the period before . Our targets for with more purchasing power and the rise relative profitability (EBITA-%) and return in the standard of living are increasing the on capital employed (ROCE-%) have been consumption of board, paper and tissue and set so that achieving them requires a good requiring additional investments for their demand situation consistent with a strong production. business cycle like the one in –. As energy consumption grows, concern Calculated at today’s exchange rates, our net about the changing climate and the deple- sales at that time were close to EUR billion. tion of fossil fuels is driving investments in The structure of our business operations the utilization of renewable energy sources has a significant impact on the achievement like biomass and waste as well as in produc- of our profitability targets. Our goal is to in- tion processes that use less energy, raw ma- crease the share of the services business and
Metso Annual Report www.metso.com TARGETS AND ACHIEVEMENTS
Conclusions to keep it above percent of our net sales also at the top of a business cycle. We esti- The Board of Directors’ dividend proposal of EUR mate Paper and Fiber Technology’s share of our net sales to drop to less than percent 1.55 per share reflects our solid financial position in upcoming years. With these structural and our confidence in Metso’s future performance. changes, we estimate EBITA before non- Even after the dividends are distributed, we will recurring items in relation to net sales to have a strong balance sheet to develop Metso. improve by approximately one percentage Based on the development last year and assum- point compared to the – period. In addition to changes in the business ing that the gradual recovery of the global econ- structure, achieving our profitability targets omy will continue, we estimate that Metso’s net requires restoring the profitability of Mining sales in 2011 will grow by more than 10 percent and Construction Technology and Energy compared to 2010 and EBITA before non-recurring and Environmental Technology to the previ- items will further improve. ous peak levels and a – percentage point improvement in Paper and Fiber Technol- This year has its own challenges in improving ogy’s profitability from the – level. the financial result, including the fragility of eco- Key factors for improving Paper and Fiber nomic recovery in certain areas, climbing inflation Technology’s profitability are cutting down especially in the emerging markets, and exchange the cost structure, growing the services rate fluctuations. On the positive side, the outlook business, and improving the profitability of new equipment sales in the Fiber and Tissue in the Mining business continues to improve and businesses. prospects for services across our businesses remain We are monitoring the success of strong. The past years have clearly proven Metso’s our businesses in terms of profitability agility and competitiveness. Metso is in a strong measured as EBITA-% and return on capital position to deliver continued profitable growth. employed. Realizing Metso’s ROCE target of over percent requires EBITA to exceed percent of net sales. The capital needs of our businesses vary based on the type of business in question, i.e. project, product or services business. At the segment level, achieving a ROCE of percent requires that EBITA exceeds percent of net sales in Mining and Construction Technology, percent of net sales in Energy and Environ- mental Technology, and percent of net sales in Paper and Fiber Technology.
www.metso.com Metso Annual Report TARGETS AND ACHIEVEMENTS
Global sustainability goals
We have two sustainability goals that we ENERGYSAVINGS OCCUPATIONAL set in regarding energy savings and occupational safety. Last year over half of AND CARBON SAFETY our biggest units achieved the short-term occupational safety goal. To achieve our DIOXIDE EMISSIONS energy-savings goal, we launched a Metso wide energy efficiency program in .
Global safety targets Metso’s occupational health and safety policy OVERVIEW OVERVIEW supports the development of a safe, healthy Our goal is to improve energy efficiency The short-term occupational safety target is and well-kept work environment. Our long- and to reduce carbon dioxide emissions a lost time incident frequency (LTIF) of <10 term goal is for zero work-related injuries. by 15 percent by 2015, and by 20 percent in every Metso unit by 2012. Our short-term occupational safety goal by 2020. is a lost time incident frequency (LTIF) of less YEAR 2010 than in every Metso unit by . In our LTIF was .. LTIF reflects the number YEAR 2010 In 2010 our LTIF was 12.4. Of our 93 biggest of injuries resulting in an absence of at least units, 53 achieved the goal. In 2010 we launched an energy efficiency one workday per million hours worked. program and established an energy ef- In , of Metso’s biggest units YEAR 2011 ficiency team, and we started mapping achieved the occupational safety goal we opportunities to save energy. We will boost the focus on safety by had set. The results reported by Metso’s strengthening our occupational safety units in this area vary dramatically, and organization and by e.g. increasing training YEAR 2011 there is clearly still room for improvement in in occupational safety issues. occupational health and safety work. In In 2011 we will continue mapping the opportunities to save energy in our we will increase our focus on occupational energy-intensive production units and we health and safety by e.g. strengthening the will launch the first investments targeting occupational safety organization and by energy efficiency improvements. implementing new tools in occupational safety training. We believe that every injury can be prevented.
Energy efficiency benefits the environment and the economy In we set global, Group-wide energy- saving and carbon dioxide emissions targets for our own production. The majority of our reported CO2 emissions come from the use of energy; therefore decreasing energy con- sumption will also reduce emissions – while also bringing financial benefits. Mapping the opportunities to save energy and decrease carbon dioxide emis- sions at the Group level was started in the
Metso Annual Report www.metso.com TARGETS AND ACHIEVEMENTS
most energy-intensive production units, Using the results of a study by the LINKS & the biggest of which are the steel and iron energy efficiency team, we defined energy NOTES foundries. The mapping will continue this efficiency indexes, and the production units year in the rest of the energy-intensive pro- reported their energy consumption in ac- Board of Directors’ duction units. Upon completion, percent cordance with the indexes for the first time Report, p. – of Metso’s energy consumption will have in the third quarter of . In the future the been mapped. quarterly reporting will promote energy Figures, p. – The biggest energy-saving opportuni- efficiency improvements and monitoring at Metso people, p. – ties are related to the use of fuel and heat. the Group level. Potential savings outside our production The reporting prin- processes were also found, e.g. in cooling ciples of sustainability data are presented and compressed air systems. in our sustainability online publication www.metso.com/ sustainabilityresults
Conclusions
We believe that the companies focusing their operations on resolving the challenges of sustainability will succeed and will create value and well-being for stakeholders and the sur- rounding society in the long-term. The fast changes taking place in our operating environment increase the importance of internal development and opera- tional improvement. Occupational safety requires continuous development of our operations. Increasing the eco-efficiency of our own production is also an important part of our sustain- ability. Read more about sustainability in our Metso Sustainability Results 2010 online publication at www.metso.com.
www.metso.com Metso Annual Report BUSINESS AT A GLANCE Business at a glance CUSTOMER INDUSTRIES Mining Construction Power generation Market drivers t Growth of emerging markets t Growth of emerging markets t Growth in energy consumption t Infrastructure investments t Infrastructure investments t Investments in renewable t Growth of middle class and maintenance energy with purchasing power t Urbanization t Refurbishment of aging power t Urbanization plants
Organic growth Excellent Good Good potential
Acquisition potential Some Some Extensive Share of orders received in 2010 29% 13% 11% METSO’S BUSINESSES Segment and net sales in 2010 Mining and Construction Technology: EUR 2,235 million Products and services t Full-scope solutions for mining industry t Grinding mills, grinding solutions t Crushers, crushing solutions t Process equipment, such as pumps, filters, thickeners, separation equipment t Mobile crushers and screens t Bulk materials handling solutions, conveyors t Expert and maintenance services t Spare and wear parts
Customers t Mining industry t Construction industry (quarries and contractors)
Competitors t Mining industry: FLSmidth, Outotec,ThyssenKrupp, Sandvik, Weir, Citic t Construction industry: Terex, Sandvik, Astec t Services business: Many local and regional competitors
Global market position t Grinders () t Mining crushers () t Construction industry crushing and screening plants (–)
Business lines t Services: net sales EUR , million t Equipment and systems: net sales EUR , million
t Mining: net sales EUR , million t Construction: net sales EUR million
Share of orders received in 2010 41%
Metso Annual Report www.metso.com BUSINESS AT A GLANCE
Automation Recycling Paper and board Fiber t Optimization of industrial t Restrictions on landfills t Growth of emerging markets t Growth of paper and board consumption in Asia processes and energy savings t Replacing raw materials with recycled t Growth of middle class with purchasing t Growth in energy consumption materials power in Asia t Availability and price of raw materials in t Digital media South America and Southeast Asia t Capacity decreases in Europe and North America
Good Good Limited Limited
Extensive Extensive Limited Limited
7% 3% 27% 10%
Energy and Environmental Technology: EUR 1,435 million Paper and Fiber Technology: EUR 1,856 million
t Power boiler plants and chemical recovery boilers, evaporators, flue-gas cleaning and t Paper and board machines, comprehensive production lines environmental systems, power boiler rebuilds t Tissue machines, comprehensive production lines t Process automation and information management application networks and systems t Equipment and production lines for chemical pulp industry t Process measurement systems and analyzers t Equipment and production lines for mechanical pulp industry t Control, on-off and emergency shutdown (ESD) valves and intelligent positioners and t Fabrics and filters for paper, pulp, energy and mining industries condition monitoring t Expert and maintenance services t Equipment for fragmentizing, compacting, and separating scrap metal t Spare and wear parts t Equipment for shredding and crushing solid waste t Expert and maintenance services t Spare and wear parts
t Power plants t Paper, tissue and board producers t Oil and gas industry t Mechanical and chemical pulp producers t Pulp and paper industry t Recycling industry
t Power plants (incl. pulp and paper industry): Foster Wheeler, Andritz, Babcock & Wilcox t Paper and board: Voith, Andritz t Automation systems: ABB, Honeywell, Invensys t Pulp: Andritz, GL&W t Valves: Emerson Process Management, GE, Flowserve t Tissue: Andritz, Voith, Celli, Kawanoe Suki and several smaller companies t Metal recycling: Lefort, Akros Henschel, Harris, The Shredder Company t Fabrics: Albany, Xerium, Voith, AstenJohnson t Solid waste recycling: Komptech, Lindner, SID t Services business: Local and regional competitors
t Biomass-fired, fluidized bed boiler technology for the energy industry (–) t Paper and board making lines () t Special analyzers and consistency transmitters for pulp and paper industry (), t Pulping lines (–) control valves (), chemical recovery boilers (–), automation solutions () t Tissue machines () t Oil and gas industry valves () t Fabrics () t Power plant automation (<) t Metal recycling systems () t Waste recycling pre-shredders ()
t Power: net sales EUR million t Paper: net sales EUR , million t Automation: net sales EUR million t Fiber: net sales EUR million t Recycling: net sales EUR million t Tissue: net sales EUR million t Fabrics: net sales EUR million
26% 32%
www.metso.com Metso Annual Report CUSTOMER INDUSTRIES Customer industries
Our three business segments – Mining and ing companies. In recent years the mining industry has consolidated, but a significant part of the world’s mining Construction Technology, Energy and Environ- operations is still carried out by small- and medium- mental Technology, and Paper and Fiber Tech- sized regional and local mining companies. In the past decade mining industry investments have shifted more nology – offer products and services to a range clearly to the southern hemisphere. Close to percent of customer industries. of our mining industry net sales come from major global players or significant regional mining companies. We estimate that about two thirds of the equipment and processes we supply are used in the production of Customers in several industries iron ore, copper and gold, but other mining operations, We serve customers around the world in the mining, such as those related to the production of nickel, plati- construction, power generation, oil and gas, recycling, num, zinc, silver and diamonds, are also important to us. and pulp and paper industries by supplying them with Our product offering consists of e.g. crushers, screens, capital goods and the related process solutions and ser- grinding mills, enrichment solutions, pelletizing plants, vices. Most of our customers are industrial companies, materials handling equipment and pyro processes as like mining companies, energy companies and paper well as expert and maintenance services. companies. Contractor customers are mainly in the con- To secure the efficient operation of their existing struction and recycling industries. Most of our custom- mines, mining companies must make replacement ers operate in the process industry and use natural raw investments and purchase spare and wear parts and materials or recycled materials in their production. maintenance services for existing machines and equip- We have a balanced offering of products, projects ment also in an economic downturn. The services and services business. Large-scale project deliveries are business accounts for over half of our deliveries to the typical to the mining, power generation, and pulp and mining industry, which offsets the impact that economic paper industries. Our deliveries to the construction and fluctuations have on our net sales. the oil and gas industries mainly consist of individual New mining projects are launched increasingly equipment components and smaller package solutions. in areas with geopolitical challenges and insufficient The share of the services business is significant in all our infrastructure, areas like Africa and the hard to access businesses. mountain regions in South America. The continuing Our customers make investment decisions based depletion of ore bodies requires investments in capacity primarily on the long-term demand and price forecasts because increasingly bigger volumes of ore must be for their products. They finance their bigger investment processed to produce the same amount of mineral. It is projects typically with a combination of cash flows and estimated that in the upcoming years these large-scale debt financing and the smaller purchases of services and highly capital-intensive projects will offer plenty of and machine rebuilds with their own cash flows. As a business opportunities for companies that are large sup- principal rule, we do not participate in the financing of pliers of technologically advanced mining equipment customer projects. and services, like Metso. Our customers are emphasizing return on invest- The recovery in developed markets and the con- ment in their decision-making and are thus pursuing tinued, strong economic growth in emerging markets efficient solutions with low initial investment and increased mineral consumption in . Because of the operating costs. strengthening demand and the higher price for miner- als, the capacity utilization rates of mining companies Our customer industries soared, which clearly increased mining company Mining industry investments in wear and spare parts and in capacity Our mining industry customers include global mining gi- upgrades. Also sales negotiations for large-scale invest- ants, significant regional players, and smaller, local min- ments picked up, but only a few investment decisions
Metso Annual Report www.metso.com CUSTOMER INDUSTRIES Results through cooperation
The role of biomass in future energy production were finalized during . Thus investment decisions Teemu Ruska, Partner and Managing Director of Bos- remained clearly below the peak levels of and ton Consulting Group’s office in Finland, shares his view . We estimate that the investments in the mining on the role of biomass in future energy production. industry will continue to grow in and also larger greenfield investment projects will be finalized. Due to The European Union has set an ambitious target the strengthening demand for minerals and our large for increasing the share of renewable energy from installed equipment base, we expect the demand for our around 12 percent of final energy demand in 2010 to mining services to remain strong. at least 20 percent by the end of this decade. In this context, final energy demand covers electricity, heat- Construction industry The construction industry customer base is fragmented: ing and cooling as well as transport fuels. All member The sector consists of a few major aggregates produc- states have recently filed initial plans on how they ers but the majority of our customers are small- and are planning to meet this target. Renewable energy medium-sized companies and contractors. The net sales targets vary from 13 percent in Belgium to as high as of our construction business are almost equally divided 50 percent in Sweden. between quarries and contractors. Quarries are either major international companies or local and regional The solution will build on a balanced mix of tech- players. Contractors are mainly small- or medium-sized nologies, and the relative weight of alternative renew- local or regional companies operating as contract crush- able technologies will vary significantly by member ers at quarries and construction sites. Our construction state. Biomass-based power and heat generation is industry customers typically react quickly to changes one of the important technologies utilized. Biomass is in the market situation by adjusting their level of new investments. supported not only for environmental and economic We supply our construction industry customers with reasons, but also for its high availability independent rock crushers, mobile and stationary crushing plants, of weather conditions and easily utilized heat load. screens and conveyors as well as expert and mainte- Based on the country plans, total biomass-based nance services. Our customers are interested particularly power and heat production will increase by over in energy-efficient mobile solutions that can be easily transferred from one location to another and that gener- 400TWh between 2010 and 2020. Electricity gen- ate as little waste, noise and dust as possible. More than eration from biomass will double from 114TWh to one third of our construction industry net sales come 232TWh, and biomass-based heating and cooling will from the services business. grow from 685TWh to 1,006TWh. In absolute terms, Key drivers for construction industry develop- the highest planned increases will happen in France, ment are the rapidly growing need for infrastructure, especially in transportation, investments in emerging Italy and the UK. markets and the modernization and expansion needs A large share of the biomass will be locally col- of the aging infrastructure in developed markets. We lected and utilized, but big regional differences in the see the emerging markets, particularly the Eastern demand/supply balance of biomass will also lead to European countries, India, China and South America, as more international trade of biomass. Very interesting future growth areas. The public sectors in these areas have earmarked significant amounts for road network times lie ahead as more new units are built and devel- construction and other transportation infrastructure opment of the biomass market proceeds. development. Many countries have introduced stimulus measures re- lated to infrastructure development. These measures have had only a minor impact so far. We expect them to have www.metso.com Metso Annual Report CUSTOMER INDUSTRIES
Our target markets in 2010: EUR 40.5 billion
PULP & PAPER EUR . billion MINING & CONSTRUCTION METSO’S MARKET SHARE ~% EUR . billion (of which services EUR . billion) METSO’S MARKET SHARE ~% t1BQFSCPBSE&63CJMMJPO . bn (of which services EUR . billion) t'JCFS&63CJMMJPO t.JOJOH&63CJMMJPO t1BQFSNBDIJOFDMPUIJOH&63CJMMJPO . bn t$POTUSVDUJPO&63CJMMJPO t1VMQQBQFSBVUPNBUJPOBOEWBMWFT&63CJMMJPO
ENERGY & ENVIRONMENT EUR . billion . bn METSO’S MARKET SHARE ~% (of which services EUR . billion) t0JMHBT WBMWFT &63CJMMJPO t1PXFSHFOFSBUJPO&63CJMMJPO t&OFSHZBOEQSPDFTTBVUPNBUJPOBOEWBMWFT&63CJMMJPO t3FDZDMJOH&63CJMMJPO
a positive impact on construction industry demand in the Oil, gas and petrochemical industry long-term. In the Asia-Pacific region and Brazil strong eco- Our oil and gas industry customers are mostly oil and nomic growth continues and infrastructure construction gas refiners. We supply them with industrial valves used projects are maintaining good demand for construction mainly for flow control and with automation systems equipment. We anticipate that demand for equipment used to control and monitoring processes, as well as used in aggregates production in Europe and in North expert and maintenance services. Flow control solutions America will gradually start to recover in , thanks to are a critical part of the refining process, the efficiency the delayed replacement cycle, but will still remain weak. of which has a significant impact on the profitability of We estimate that demand for our services business for the refineries. Over two-thirds of our automation products construction industry will remain satisfactory. go to the oil, gas and petrochemical industry, and the rest mainly to the pulp and paper industry. Power generation There was a favorable turnaround in the oil, gas and Independent energy companies and municipal power petrochemical industry’s investments and demand for plants account for about two thirds of the net sales of automation products in , triggered by the increased our Power business, and pulp and paper mills account for demand and price for energy resulting from the global about one third. Our strengths in power generation solu- economic recovery. We estimate that demand for our tions include our technological know-how enabling the automation products will continue to be good in , as use of biomass and waste in energy production, and con- the oil, gas and petrochemical industries increase their trolling technically challenging combustion processes investments. that utilize multiple fuels simultaneously, supported by advanced automation solutions. Our offering for power Recycling industry suppliers includes power plant boilers, medium- and Our recycling industry customers are mostly regional small-sized power plants, flue-gas cleaning systems, operators specialized in recycling. We supply the metal automation systems as well as expert and maintenance recycling industry with crushers, shears, shredders and services. balers and the related services. Our product portfolio The long-term market outlook for the energy indus- also includes technology for crushing other solid waste. try, and particularly for energy production based on Trends in the recycling industry include sector con- renewable fuels like biomass and waste, is promising. solidation and expansion of operations to cover all kinds The International Energy Association (IEA) and McKinsey of recycling operations, including the recycling of metal, have estimated that about percent of the power plant solid waste, electronics and energy waste. capacity necessary in has not yet been built, and a The metal recycling industry is most developed in significant share of that new capacity is estimated to be Europe, Japan and North America. Growth areas include based on renewable energy sources. The sizable need to Eastern European countries, Asia and South America. modernize aging power plants in Europe and the United Making the reuse and recycling of waste as efficient as States during the next two decades is estimated to also possible and utilizing the remaining waste for energy increase demand for power boilers. production will become more common over the Several European countries and the United States long-term because of the aim to prevent the growth of have set targets to increase the use of renewable energy; landfills. we expect this to support demand for power plant We expect the demand for metal- and solid-waste re- solutions based on the use of biomass and waste. We cycling equipment to be satisfactory in . Demand for estimate the demand for power plants using renewable the recycling equipment services business is expected energy sources to be good in Europe and North America to strengthen, as the capacity utilization rates of our cus- in . However, uncertainties related to the financial tomers’ plants and equipment increase. The long-term markets and support mechanisms for renewable energy outlook in the recycling industry is good. may delay final decisions in some projects. We estimate demand for the services business to be at a good level.
Metso Annual Report www.metso.com CUSTOMER INDUSTRIES
Orders received by customer industry
Mining % (%) Construction % (%) Power generation % (%) Oil and gas % (%) Recycling % (%) Pulp % (%) Paper % (%)
Pulp and paper industry LINKS & Our customer base in the pulp and paper industry NOTES consists of major, regional or global players and a large number of smaller, local companies. We are one of the Megatrends, p. – world’s leading suppliers of paper, board and tissue lines, pulping lines, the related spare and wear parts, and Results Segments, p. – through dialogue expert and maintenance services. Figures, p. – Investments in new machinery and equipment are clearly more concentrated to Asia and South America, where economic growth is strong and the raw material Mining companies looking for used is the fast-growing, plantation-grown, short-fiber closer supplier relationships eucalyptus and acacia. Also in Russia there are several John Trescot, Senior Vice President, Global Sales, Ross Wother- pulp mill projects planned that utilize the country’s spoon, Country manager, Vice President, Australian and New extensive forest resources. The pulp and paper industry Zealand Region, and Aldo Cermenati, Country Manager, Vice in Europe and the United States is adjusting its opera- President, Services, South America, all from Metso’s Mining and tions to the permanently changed market situation, and Construction Technology, talked about the global mining outlook. production capacity has been dramatically decreased. Demand for our products and services in these areas – John Trescot (JT): The world’s major mining companies expect primarily targets machine rebuilds, process improve- metal prices to remain high for some years, and they are investing ments, spare parts and consumables as well as repair accordingly. After the financial crisis, our customers are looking for a closer supplier relationship. and maintenance services. – Demand for new fiber lines, rebuilds and pulp mill Ross Wotherspoon (RW): In Australia many major mining companies plan to expand and grow their capacities. There has been services has clearly recovered from the low levels of a rise in foreign investment in Australia from emerging markets, the past few years. We expect the fiber line equip- especially China. Emerging economies have traditionally been huge ment market to continue to be active this year with a consumers of our resources, and now they want to take part in tight competitive environment for large new projects. developing both the resources and the associated infrastructure. Demand for paper and board lines is expected to be – Aldo Cermenati (AC): Also in South America, we expect satisfactory and demand for tissue lines good in . investments in new projects and existing operations. The Chinese We expect the improved capacity utilization rates of the and Japanese presence is growing rapidly as they are investing in paper and board industry to boost the demand for our new proprietary mining projects to assure a continuous supply of services business. concentrates. – JT: In China and India, for example, we are being called in more and more to work with customers on projects outside their territory. Fortunately, we have strong operations in both countries and can provide global support from a local base. – AC: Customers show more interest in package solutions that include a process guarantee, more supplier involvement on the flow sheet design and one-source responsibility. – RW: Customers are also trying to do more with less. There is a greater emphasis on lower operating costs, lower water consump- tion, improved energy efficiency, lower manning requirements, reduced development time, lower capital costs, and the list goes on. Some of the larger miners are developing highly automated facilities that are operated from control rooms thousands of miles from the actual mine site. The opportunity that exists for us is to provide a total service solution that accommodates all of these requirements.
www.metso.com Metso Annual Report MINING AND CONSTRUCTION TECHNOLOGY Mining and Construction Technology
Mining industry investments are estimated to Focus of growth to emerging markets The growth and urbanization of emerging markets and be at a high level in upcoming years due to the infrastructure construction required by the increasing the rapidly growing consumption of minerals stream of goods strengthen the demand for virtually all minerals and aggregates. Both in the mining and con- in emerging economies. Economic growth in struction industries, the focus of growth of new equip- emerging markets requires sizeable investments ment has shifted to emerging markets and it is laying a foundation also for the growth of the services business. in transportation infrastructure, which supports In recent years we have expanded our operations the demand for our construction equipment. particularly in India and Brazil. Our global presence is supported by the construction of Metso Park in Alwar, We are pursuing growth from the services busi- in the state of Rajasthan, India; the industrial facility ness and by strengthening our presence par- started its operations in late . Initially, the factory is manufacturing mobile crusher components, pumps ticularly in the growing markets in South and and rubber parts primarily for the needs of customers Central America, India, China and Russia. in India and other nearby areas. In recent years Brazil has become our single biggest market in terms of net sales and number of personnel, and we will continue strengthening our operations there. Supporting customers In upcoming years we will invest in developing our throughout the product life cycle business also in China and Russia so that we can tap into Our strong market position is founded on our profound the growth opportunities of these markets. Our goal is understanding of customer processes and technologies, to strengthen our local sales and service organizations in our long-term customer relations, and our compre- both of these markets and to develop our local procure- hensive product and services portfolio. Our extensive ment know-how and subcontractor networks. Australia, installed equipment base, which is growing rapidly par- South Africa, Chile, Peru, Mexico and Canada are also ticularly in emerging markets, coupled with the growing very important mining industry markets for us, and we demand for minerals and aggregates create a good will continue to strengthen our competitiveness in these platform for the development and future growth of our countries. services business also in the long-term. Our mission is to serve our mining and construction Systematic work to industry customers throughout the product life cycle improve competitiveness – from the initial delivery of the process or equipment We operate in global markets; growth and success in the to the continuous optimization and maintenance. In intensifying competition require us to continuously de- recent years we have put special focus on developing velop and enhance our operational efficiency. We have our services business by e.g. expanding our offering and several programs under way to develop and improve strengthening our resources and customer service close our procurement, production, supply chain logistics and to customers. inventory management. By developing operations we Wear and spare parts account for some – per- are not only targeting cost savings and the release of cent of the net sales of the services business; mainte- capital tied to operations – our goal is the continuous nance and other expert services account for about – improvement of customer service and competitiveness. percent. We see growth opportunities particularly in Our global management and enterprise resource plan- equipment maintenance and various expert services, ning systems ensure that our operations are uniform and which many customers have thus far taken care of on efficient and that we utilize economies of scale. their own, and in heavy-use wear parts, where the com- Research and development work that meets the petitive arena is still quite fragmented. needs of our customers is one of the prerequisites for
Metso Annual Report www.metso.com MINING AND CONSTRUCTION TECHNOLOGY
future success. Minimizing the environmental impacts LINKS & of mining and construction processes has become a NOTES key factor steering our business development and our product offering. In the equipment and processes we Read more about how supply, we use the best available technology for reduc- OUR STRATEGIC the global megatrends ing energy consumption, emissions, noise and dust, and impact our operations, maximizing profitability. Also health, safety and environ- FOCUS AREAS p. – mental aspects are emphasized in all our activities. Read more about the Securing sufficient capacity and highly qualified t Growing the services business development of the personnel resources also play a key role. Ensuring the mining and construction availability of components and products through our t Strengthening our global industries, p. – presence own production or via our supplier network is critical. Figures, p. – Competent professionals in engineering and project management duties as well as those in maintenance t Developing and boosting Read more about our and services play a key role in enabling growth around efficiency in our ways of financial development in in the Board of the world. The transfer of know-how is important in operating Directors’ Report, securing operational continuity. p. – t Offering sustainable equipment and processes that reduce www.metso.com/ Towards profitable growth miningandconstruction There was a clear upswing in the demand for our environmental impacts products and services in particularly in the mining industry, and emerging markets, also in the construc- t Emphasizing health, environ- tion sector. Our goal is for profitable growth and strong mental and safety aspects competitiveness both in the short- and long-term. We are relying on our extensive installed equipment base, t Securing the needed capacity our global presence, our good customer relationships, and competent personnel and our strong know-how in the services business to help us achieve this goal.
OPERATING MODEL Mining industry products are mainly tailored for the customer’s needs, and we focus on engineering and KEY FIGURES, EUR million managing delivery projects. We buy most of the manu- facturing for heavy-duty mining products from our 2009 2010 global subcontractor network. Construction equipment products are mostly standard solutions. We manufacture Net sales 2,075 2,235 them in our own factories in different market areas, and EBITA* 201.6 264.8 we focus on the final assembly of components supplied by our subcontractor network. We manufacture spare % of net sales 9.7 11.8 and wear parts mainly in our own factories located in different market areas, which enables quick deliveries to Personnel, Dec 31 9,541 10,206 our customers. * before non-recurring items
www.metso.com Metso Annual Report ENERGY AND ENVIRONMENTAL TECHNOLOGY Energy and Environmental Technology
Our growth in upcoming The segment’s uniting factors are biomass- cycling, it is estimated that biomass will and waste-based energy production solu- have a central role in increasing sustainable years in the area of en- tions, for which Power supplies the boiler energy production. ergy and environmental and flue-gas cleaning technology, Automa- We are an especially strong supplier of tion the process control solutions, and Recy- multifuel-fired power boilers. We also have technology will be based cling the solid-waste handling solutions. a solid track record in converting pulverized increasingly on the de- We aim to grow in fast-developing mar- coal-fired boilers into biomass-fired boilers. kets for biomass- and waste-fueled energy A significant part of the coal-fired power velopment of bioenergy production solutions. Supplementing tech- plants in Europe and North America are solutions. Our bioenergy nologies related to our bioenergy solutions approaching the end of their useful life, and is an important development project for us. converting them into modern biomass- and solutions are built on the We are one of the world’s leading suppli- multifuel-fired boilers utilizing process collaboration and shared ers of comprehensive bioenergy solutions. automation is expected to become topical We have a wide selection of biomass-fueled in upcoming years. We have developed know-how for the needs power plant solutions. Additionally, we have automation products and applications that of the energy industry. technology for the reception and handling power producers can use to increase the ef- of fuel, flue-gas cleaning and complete pow- ficiency of their power plants and to reduce er plant automation. In modern power plant fuel consumption as well as emissions. solutions, automation plays a significant role Alongside the combustion process, we in boosting energy efficiency and reducing are developing new biomass refining pro- emissions. cesses, such as gasification, pyrolyses and We are also the leading supplier of power torrefaction. The end result is new biomass generation solutions, recovery boilers, and products that are more energy efficient, automation solutions and valves for the such as bio-oil, biogas, bio-coal and other pulp and paper industry. Our automation highly refined products. and service solutions help our customers SEE LINK 1 increase efficiency and reduce emissions and the use of raw materials and energy in many Growth in new market areas and industrial processes. We are also a significant services supplier of valves and services for the oil, gas The main markets for our bioenergy solu- and petrochemical industry and the lead- tions are still in Europe and North America. ing supplier of metal recycling equipment. We are actively expanding our operations in Geographical expansion of our operations Asia and South America where we already and growth in the services business are have a strong position in automation and important development areas for us. power generation solutions for the pulp and paper industry. Biomass replacing fossil fuels One of the challenges of our Recycling Global targets to reduce carbon dioxide emis- business is to grow also in emerging mar- sions and to increase the use of renewable kets. Higher oil and gas prices have boosted energy sources are boosting the demand for demand for valves and valve services in biomass- and waste-fueled solutions. Bio- emerging markets. mass, which consists of organic materials like In spring we opened a technology wood, can be used to replace fossil fuels. center in Shanghai, China, specializing in Energy produced with biomass is called automation solutions. The center provides carbon neutral, because the carbon dioxide facilities for comprehensive engineering released in the combustion process is and manufacturing. Local sales, service and absorbed in new growth. Because its fast product support functions for Automation
Metso Annual Report www.metso.com ENERGY AND ENVIRONMENTAL TECHNOLOGY
as well as some functions of Recycling and LINKS & Power businesses are also located in the unit. NOTES In addition to technology, we offer our customers life-cycle services for products and Read more about how production processes as well as in-depth ap- OUR STRATEGIC global megatrends plication know-how. We are working actively impact our opera- to strengthen our position as a supplier of FOCUS AREAS tions, p. – key knowledge-based services close to our Read more about the customers. t Development of development of the bioenergy solutions energy and recycling Environmental awareness industries, p. – Business growth in emerging brings growth t Read more about Demand for energy and environmental tech- markets our environmental nology products and services strengthened in solutions, p. – as our customers increased their invest- t Growing know-how-based Read more about our ments and the market outlook improved. We services business close to financial development believe that rising environmental awareness customers in in the Board of and tougher environmental legislation create Directors’ Report, favorable longer-term growth prospects for p. – our bioenergy solutions, our energy efficiency- Figures, p. – boosting automation solutions and our recy- cling technology. www.metso.com/ power
www.metso.com/ OPERATING MODEL automation Power industry products are tailored for the www.metso.com/ recycling customer’s needs. We focus on engineering and project management and outsource a significant part of the manufacturing. Process automation solutions account for half of our Automation business, and control valves and positioners for the other half. Valves and posi- tioners are assembled mainly in our own facto- KEY FIGURES, EUR million ries and the components are outsourced. Our process and automation solutions are based on 2009 2010 our own engineering know-how. A significant part of the engineering work is purchased from Net sales 1,523 1,435 our subcontractors operating in competitive EBITA* 147.4 139.0 countries. Our recycling technology know-how is related mainly to metal and solid-waste recy- % of net sales 9.7 9.7 cling solutions. We manufacture and assemble recycling equipment mainly in our own units, Personnel, Dec 31 6,060 6,073 and the bulk of the components come from our subcontracting network. * before non-recurring items
www.metso.com Metso Annual Report PAPER AND FIBER TECHNOLOGY Paper and Fiber Technology
Investments in new paper and board capacity of our customers will continue to drive the expansion of our maintenance network. are continuing in China and elsewhere in Asia, We are growing our services business-related offer- fueled by brisk economic growth. New pulp ing and know-how also through strategic acquisitions. At the end of we purchased Tamfelt Corporation, capacity is being built mainly in South America one of the world’s leading suppliers of technical textiles. and Southeast Asia, where low-cost wood raw It became our new Fabrics business line. material is available. Our extensive installed Strong position in emerging markets equipment base offers excellent growth op- The consumption of paper, packaging and tissue paper is increasing as a result of globally growing demand for portunities for our services business globally. consumer goods and the fast growing middle class with We are responding to changes in the sector by higher purchasing power in the emerging markets. The consulting and engineering company Pöyry estimates strengthening our global presence. Improving that demand in emerging markets will grow by .– the profitability of our Fiber and Tissue business- percent a year, which requires the amount of new invest- ments to remain at about the same level as in past years. es and cutting down the cost structure through- New paper and board machine investments are con- out the entire business segment are the key centrated in the major and rapidly growing markets of China. We are currently the biggest supplier of paper and factors in strengthening our competitiveness. board machines and the related maintenance and expert services in China, with a market share around percent. It is anticipated that local competitors will strengthen their offering, particularly as suppliers of individual equipment components and maintenance services. Our competitive strengths include our services business Services business important in know-how, solutions developed for local needs and all market areas comprehensive know-how of customer production In the pulp and paper industry the need for mainte- processes. nance and expert services is emphasized in developed The emphasis of pulp production has shifted from markets, as customers are optimizing existing capacity the northern hemisphere to South America and South- through process upgrades and machine rebuilds to east Asia, where the availability of low-cost raw material meet market demand and to improve profitability. In the is abundant. In recent years Brazil has become one of European and North American markets we are putting the world’s leading pulp producers. We are strengthen- a stronger focus on developing spare and wear parts ing our presence there by constructing a new service services and other maintenance services. Our services and maintenance center in Araucaria. Other important business development is supported by our extensive emerging markets for us include e.g. Russia and India, installed equipment base and on an in-depth under- where we already have a strong market position in pulp- standing of our customers’ industrial processes. ing equipment markets. We aim to expand our opera- In emerging markets we offer our customers tions in both countries as their markets develop. long-term maintenance and other service agreements To strengthen our global presence, we are increasing already during the start-up of new projects. Offering also local engineering and project management know- expert services close to customers is critical in terms how in emerging markets. One of our key challenges is of competitiveness. Our third service center in China, to ensure that the quality of our operations and prod- located in the city of Zibo, in Shandong Province, was ucts remains high as we increase our production and inaugurated in November . The operational growth procurements in Asia and South America.
Metso Annual Report www.metso.com PAPER AND FIBER TECHNOLOGY
We aim to support the structural change of our LINKS & customer industry through our research and product NOTES development by adapting our products and services to the new needs of our customers. In developed markets Read more about this means innovations that support the services busi- OUR STRATEGIC how the global me- ness as well as solutions enabling entirely new business, gatrends impact our operations, p. – like forest company bio-refining projects. On the other FOCUS AREAS hand, in emerging markets this translates to increasingly Read more about our cost-efficient solutions. In addition to these, solutions t Developing and growing the actions to improve supporting sustainability are a focus area of our product services business our profitability in our Annual Report, development. t Improving profitability and p. – Profitability brings competitiveness price competitiveness Read more about The demand environment for Paper and Fiber Tech- the development of t Strengthening global presence the pulp and paper nology strengthened in , after two difficult years. industry, p. – Improving the profitability of the Fiber and Tissue businesses, strengthening our presence in emerging Read more about our markets and cutting down our cost structure through- financial development in in the Board of out the segment are the key factors in strengthening our Directors’ Report, competitiveness. Our innovative products and services, p. – our global sales and services network and our large base of installed equipment give us a solid foundation Figures, p. – for strengthening our position as the industry’s leading www.metso.com/ supplier of products and services. pulpandpaper
OPERATING MODEL Paper, board and tissue machines are customized prod- ucts, which we engineer and assemble in our units in the Nordic countries and China with steel structures and components purchased from subcontractors. The Fiber business line offers customized solutions for chemical and mechanical pulp industry customers, and we focus KEY FIGURES, EUR million primarily on engineering and delivery project man- agement while subcontractors are manufacturing the 2009 2010 products we supply. We manufacture fabrics and paper machine clothing in our own factories in different market Net sales 1,408 1,856 areas. The service of paper, board and tissue machines EBITA* 71.3 107.6 consists mostly of repairs and maintenance of paper ma- chine rolls. We have roll service units around the world % of net sales 5.1 5.8 specializing in the handling of heavy components. Personnel, Dec 31 10,459 10,362
* before non-recurring items
www.metso.com Metso Annual Report GROUP FIGURES Group key figures
Key figures, EUR million 2008 2009 2010 Net sales 6,400 5,016 5,552 Services, % of net sales 38 42 45 Earnings before interest, tax and amortization (EBITA) and non-recurring items 686.4 399.0 491.0 % of net sales 10.7 8.0 8.8 Operating profit 637.2 293.6 445.2 % of net sales 10.0 5.9 8.0 Profit before taxes 548 222 370 % of net sales 8.6 4.4 6.7 Profit 390 151 258 % of net sales 6.1 3.0 4.6 Gross capital expenditure (excluding business acquisitions) 255 117 135 Business acquisitions, net of cash acquired 44 1 21 Earnings per share, EUR 2.75 1.06 1.71 Dividend per share, EUR* 0.70 0.70 1.55* Balance sheet total 5,511 5,715 6,232 Return on capital employed (ROCE), % 23.2 10.0 13.5 Return on equity (ROE), % 26.0 9.8 13.6 Equity to assets ratio, % 30.9 35.7 38.1 Gearing, % 75.7 32.5 15.0 Free cash flow 29 717 435 Orders received 6,384 4,358 5,944 Order backlog, December 31 4,088 3,415 4,023 Personnel, December 31 29,322 27,166 28,593 * 2010 Board’s proposal
Balance sheet structure Free cash fl ow
EUR million EUR million ,
, ,
,
,
Total equity Net interest-bearing liabilities Fixed assets Goodwill Net working capital Gearing and equity to assets ratio
%
Gearing Equity to assets ratio
Metso Annual Report www.metso.com SEGMENT FIGURES Segment key figures
MINING AND CONSTRUCTION TECHNOLOGY
Net sales by customer industry Segment key figures
EUR million 2009 2010 Net sales 2,075 2,235 Mining % (%) Services net sales 1,017 1,139 Construction % (%) EBITA before non-recurring items 201.6 264.8 % of net sales 9.7 11.8 Operating profit 198.8 290.4 Capital employed, Dec 31 1,072 1,146 Gross capital expenditure 40 37 Research and development expenses 12 18 Orders received 1,660 2,457 Order backlog, Dec 31 1,041 1,356 Personnel, Dec 31 9,541 10,206
Orders received by area Orders received Net sales and order backlog EUR million EUR million , , Finland % (%) , , Other Nordic countries % (%) Other European , , countries % (%) , , North America % (%) , , South and Central America % (%) Asia-Pacifi c % (%) Africa and Middle East % (%) Orders received Order backlog
Personnel by area Services net sales Operating profi t and EBITA before non-recurring items EUR million EUR million , % % Finland % (%) , Other Nordic countries % (%) Other European countries % (%) North America % (%) South and Central America % (%) Asia-Pacifi c % (%) Africa and Middle East % (%) Services net sales Operating profi t % of external net sales EBITA before non-recurring items EBITA before non-recurring items, % of net sales
www.metso.com Metso Annual Report SEGMENT FIGURES
ENERGY AND ENVIRONMENTAL TECHNOLOGY
Net sales by customer industry Segment key figures
EUR million 2009 2010 Net sales 1,523 1,435 Power generation % (%) Services net sales 516 547 Oil and gas % (%) EBITA before non-recurring items 147.4 139.0 9.7 Recycling % (%) % of net sales 9.7 Pulp and paper % (%) Operating profit 118.1 111.4 Capital employed, Dec 31 524 495 Gross capital expenditure 25 30 Research and development expenses 45 45 Orders received 1,297 1,528 Order backlog, Dec 31 1,032 1,158 Personnel, Dec 31 6,060 6,073
Orders received by area Orders received Net sales and order backlog EUR million EUR million , , Finland % (%) Other Nordic countries % (%) , , Other European countries % (%) , , North America % (%) South and Central America % (%) Asia-Pacifi c % (%) Africa and Middle East % (%) Orders received Order backlog
Personnel by area Services net sales Operating profi t and EBITA before non-recurring items EUR million EUR million % % Finland % (%) Other Nordic countries % (%) Other European countries % (%) North America % (%) South and Central America % (%) Asia-Pacifi c % (%) Africa and Middle East % (%) Services net sales Operating profi t % of external net sales EBITA before non-recurring items EBITA before non-recurring items, % of net sales
Metso Annual Report www.metso.com SEGMENT FIGURES
PAPER AND FIBER TECHNOLOGY
Net sales by customer industry Segment key figures
EUR million 2009 2010 Net sales 1,408 1,856 Paper % (%) Services net sales 569 766 107.6 Pulp % (%) EBITA before non-recurring items 71.3 % of net sales 5.1 5.8 Operating profit 0.8 70.3 Capital employed, Dec 31 636 584 Gross capital expenditure 42 60 Research and development expenses 56 48 Orders received 1,384 1,947 Order backlog, Dec 31 1,380 1,559 Personnel, Dec 31 10,459 10,362
Orders received by area Orders received Net sales and order backlog EUR million EUR million , , Finland % (%) Other Nordic countries % (%) , , Other European , , countries % (%) , , North America % (%) South and Central America % (%) Asia-Pacifi c % (%) Africa and Middle East % (%) Orders received Order backlog
Personnel by area Services net sales Operating profi t and EBITA before non-recurring items EUR million EUR million % % Finland % (%) Other Nordic countries % (%) Other European countries % (%) North America % (%) South and Central America % (%) Asia-Pacifi c % (%) Africa and Middle East % (%) Services net sales Operating profi t % of external net sales EBITA before non-recurring items EBITA before non-recurring items, % of net sales
www.metso.com Metso Annual Report OPERATIONAL FIGURES Operational figures
Key figures
EUR million 2008 2009 2010 Procurements* 4,214 3,248 3,470 Research and development expenditure (including IPR expenses) 148 131 129 Research and development expenses 134 115 111 Priority applications, pcs* 230 200 181 Invention disclosures, pcs* 900 620 780 Average number of employees 28,010 27,813 27,585 Wages and salaries excluding social costs 1,066 991 1,106 Lost time incident frequency (LTIF)* n/a n/a 12.4 Absences due to illness or injury, days/employee* 6.1 5.4 5.4 Sponsorships* 0.9 0.6 3.1 **Coverage of certified environmental management systems, %* 58.0 63.0 64.0 Carbon dioxide emissions, 1,000 t* 316 265 284 Energy consumption, TJ* 3,996 3,398 3,693 Metals use, 1,000 t* 251 156 235
* Unaudited ** In proportion to the energy consumption
Net sales, 20 largest countries Orders received, 20 largest countries
EUR million 2009 2010 EUR million 2009 2010 China 538 880 China 762 895 USA 566 704 USA 631 704 Brazil 301 422 Brazil 200 592 Finland 328 296 Finland 292 348 Australia 216 277 Sweden 231 307 Sweden 335 275 Russia 127 279 Germany 350 259 India 117 231 Canada 208 215 Australia 165 227 Russia 119 202 Great Britain 49 211 India 131 165 Canada 165 209 Chile 129 160 Germany 194 202 France 160 149 Chile 134 190 South Africa 158 134 France 108 145 Mexico 78 126 South Africa 115 145 Spain 81 110 Mexico 93 116 Poland 115 103 Turkey 35 94 Great Britain 75 101 Peru 37 88 Norway 62 78 Spain 107 72 Turkey 24 65 Norway 71 68 Belgium 67 63 Poland 109 60
Metso Annual Report www.metso.com OPERATIONAL FIGURES
Personnel, 20 largest countries Purchases by country, 10 largest countries
2009 2010 EUR million 2009 2010 Finland 8,746 8,748 Finland 880 1,040 China 2,622 2,842 USA 338 344 USA 2,758 2,767 Sweden 223 273 Sweden 2,754 2,677 Brazil 143 266 Brazil 1,738 2,029 Germany 184 174 South Africa 1,311 1,319 France 105 142 Germany 993 1,164 China 86 122 India 735 864 South-Africa 106 113 Chile 563 744 Canada 92 99 Canada 670 724 Australia 37 98 France 755 717 535 Australia 507 Capital expenditure by area Poland 105 490 Czech Republic 337 337 EUR million 2009 2010 Spain 270 274 Nordic countries 60 75 Portugal 263 255 Other European countries 9 9 Mexico 179 230 North America 10 6 Great Britain 273 225 South and Central America 10 9 Russia 177 207 Asia-Pacific 27 35 Peru 135 160 Africa and Middle East 1 1 Total 117 135
Monetary flows by stakeholder group 2008 2009 2010 EUR % of EUR % of EUR % of Generation of value added: million net sales million net sales million net sales Customers Net sales 6,400 5,016 5,552 Suppliers Purchases –4,214 66 –3,248 65 –3,470 63 Metso-produced added value 2,186 1,768 2,082
Distribution of value added: Employees Wages and salaries –1,066 17 –991 20 –1,106 20 Public sector Taxes and other indirect employee costs –471 7 –375 7 –431 8 Creditors Net financial expenses –89 1 –72 1 –75 1 Shareholders Dividends –425 7 –99 2 –105 2 Distributed to stakeholders –2,051 -1,537 –1,717 Retained in business 135 2 231 5 365 7
www.metso.com Metso Annual Report QUARTERLY INFORMATION Quarterly Information
Consolidated statements of income
EUR million 1–3/09 4–6/09 7–9/09 10–12/09 2009 1–3/10 4–6/10 7–9/10 10–12/10 2010 Net sales 1,220 1,247 1,196 1,353 5,016 1,170 1,370 1,325 1,687 5,552 Cost of goods sold –925 –942 –885 –1,056 –3,808 –879 –1,009 –969 –1,273 –4,130 Gross profit 295 305 311 297 1,208 291 361 356 414 1,422
Selling, general and administrative expenses –239 –239 –210 –250 –938 –233 –260 –251 –284 –1,028 Other operating income and expenses, net 3 –1 13 9 24 12 39 –2 1 50 Share in profits and losses of associated companies 0 1 0 –1 0 00011 Operating profit 59 66 114 55 294 70 140 103 132 445 % of net sales 4.8 5.3 9.5 4.1 5.9 5.9 10.2 7.8 7.8 8.0
Financial income and expenses, net –22 –14 –23 –13 –72 –27 –18 –8 –22 –75 Profit before taxes 37 52 91 42 222 43 122 95 110 370
Income taxes –11 –15 –28 –17 –71 –13 –37 –28 –34 –112 Profit 26 37 63 25 151 30 85 67 76 258
Attributable to: Shareholders of the company 26 37 62 25 150 30 84 67 76 257 Non-controlling interests 0 0 1 0 1 01001 Profit 26 37 63 25 151 30 85 67 76 258
Earnings per share, EUR 0.18 0.26 0.44 0.18 1.06 0.20 0.56 0.45 0.50 1.71
Metso Annual Report www.metso.com QUARTERLY INFORMATION
Consolidated balance sheet
EUR million Mar 31, 2009 June 30, 2009 Sep 30, 2009 Dec 31, 2009 Mar 31, 2010 June 30, 2010 Sep 30, 2010 Dec 31, 2010 Non-current assets Intangible assets 1,043 1,037 1,036 1,175 1,175 1,180 1,167 1,167 Property, plant and equipment 731 723 715 819 842 856 825 849 Financial and other assets 249 266 347 422 537 531 543 410 Total non-current assets 2,023 2,026 2,098 2,416 2,554 2,567 2,535 2,426
Current assets Inventories 1,591 1,466 1,316 1,172 1,234 1,310 1,320 1,305 Receivables 1,426 1,411 1,433 1,400 1,549 1,614 1,623 1,856 Cash and cash equivalents 436 605 612 727 535 568 622 645 Total current assets 3,453 3,482 3,361 3,299 3,318 3,492 3,565 3,806
Total assets 5,476 5,508 5,459 5,715 5,872 6,059 6,100 6,232
Equity Share capital 241 241 241 241 241 241 241 241 Other shareholders' equity 1,157 1,233 1,308 1,542 1,508 1,636 1,698 1,808 Non-controlling interests 9 9 10 9 911922 Total equity 1,407 1,483 1,559 1,792 1,758 1,888 1,948 2,071
Liabilities Non-current liabilities 1,374 1,614 1,626 1,641 1,640 1,586 1,555 1,269 Current liabilities 2,695 2,411 2,274 2,282 2,474 2,585 2,597 2,892 Total liabilities 4,069 4,025 3,900 3,923 4,114 4,171 4,152 4,161
Total shareholders' equity and liabilities 5,476 5,508 5,459 5,715 5,872 6,059 6,100 6,232
Net interest bearing liabilities Long-term interest bearing debt 1,080 1,322 1,331 1,334 1,326 1,266 1,240 956 Short-term interest bearing debt 399 357 257 242 159 191 170 417 Cash and cash equivalents –436 –605 –612 –727 –535 –568 –622 –645 Other interest bearing assets –21 –32 –179 –266 –372 –351 –373 –418 Total 1,022 1,042 797 583 578 538 415 310
Equity to assets ratio, % 30.3 31.7 33.2 35.7 34.0 35.6 37.2 38.1 Gearing, % 72.6 70.2 51.1 32.5 32.8 28.5 21.3 15.0
www.metso.com Metso Annual Report QUARTERLY INFORMATION
Net sales
EUR million 1–3/09 4–6/09 7–9/09 10–12/09 2009 1–3/10 4–6/10 7–9/10 10–12/10 2010 Mining and Construction Technology 528 531 492 524 2,075 472 541 563 659 2,235 Energy and Environmental Technology 397 357 350 419 1,523 332 334 312 457 1,435 Paper and Fiber Technology 287 359 356 406 1,408 364 494 443 555 1,856 Valmet Automotive 21 14 7 14 56 11 17 20 36 84 Group Head Office and other ------Group Head Office and others total 21 14 7 14 56 11 17 20 36 84 Intra Metso net sales –13 –14 –9 –10 –46 –9 –16 –13 –20 –58 Metso total 1,220 1,247 1,196 1,353 5,016 1,170 1,370 1,325 1,687 5,552
EBITA before non-recurring items
EUR million 1–3/09 4–6/09 7–9/09 10–12/09 2009 1–3/10 4–6/10 7–9/10 10–12/10 2010 Mining and Construction Technology 59.4 42.3 57.7 42.2 201.6 39.5 64.8 74.9 85.6 264.8 Energy and Environmental Technology 33.7 35.5 40.3 37.9 147.4 31.8 29.3 31.7 46.2 139.0 Paper and Fiber Technology 3.8 14.8 35.9 16.8 71.3 18.9 36.0 31.8 20.9 107.6 Valmet Automotive –0.3 –2.6 –5.5 0.3 –8.1 –7.1 –1.4 0.7 3.2 –4.6 Group Head Office and other –4.8 –5.1 5.9 –9.2 –13.2 4.5 –3.7 –10.5 –6.1 –15.8 Group Head Office and others total –5.1 –7.7 0.4 –8.9 –21.3 –2.6 –5.1 –9.8 –2.9 –20.4 Metso total 91.8 84.9 134.3 88.0 399.0 87.6 125.0 128.6 149.8 491.0
EBITA before non-recurring items, % of net sales
% 1–3/09 4–6/09 7–9/09 10–12/09 2009 1–3/10 4–6/10 7–9/10 10–12/10 2010 Mining and Construction Technology 11.3 8.0 11.7 8.1 9.7 8.4 12.0 13.3 13.0 11.8 Energy and Environmental Technology 8.5 9.9 11.5 9.0 9.7 9.6 8.8 10.2 10.1 9.7 Paper and Fiber Technology 1.3 4.1 10.1 4.1 5.1 5.2 7.3 7.2 3.8 5.8 Valmet Automotive –1.4 –18.6 –78.6 2.1 –14.5 –64.5 –8.2 3.5 8.9 –5.5 Group Head Office and other n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Group Head Office and others total n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Metso total 7.5 6.8 11.2 6.5 8.0 7.5 9.1 9.7 8.9 8.8
Operating profit (loss)
EUR million 1–3/09 4–6/09 7–9/09 10–12/09 2009 1–3/10 4–6/10 7–9/10 10–12/10 2010 Mining and Construction Technology 54.9 46.0 53.7 44.2 198.8 38.1 95.7 68.2 88.4 290.4 Energy and Environmental Technology 27.7 29.7 32.9 27.8 118.1 23.5 22.7 23.8 41.4 111.4 Paper and Fiber Technology –18.2 –1.6 27.6 –7.0 0.8 11.3 27.0 21.9 10.1 70.3 Valmet Automotive –0.3 –2.6 –5.5 0.2 –8.2 –7.1 –1.4 0.7 1.4 –6.4 Group Head Office and other –5.5 –5.6 5.4 –10.2 –15.9 3.7 –4.0 –11.1 –9.1 –20.5 Group Head Office and others total –5.8 –8.2 –0.1 –10.0 –24.1 –3.4 –5.4 –10.4 –7.7 –26.9 Metso total 58.6 65.9 114.1 55.0 293.6 69.5 140.0 103.5 132.2 445.2
Operating profit (loss), % of net sales
% 1–3/09 4–6/09 7–9/09 10–12/09 2009 1–3/10 4–6/10 7–9/10 10–12/10 2010 Mining and Construction Technology 10.4 8.7 10.9 8.4 9.6 8.1 17.7 12.1 13.4 13.0 Energy and Environmental Technology 7.0 8.3 9.4 6.6 7.8 7.1 6.8 7.6 9.1 7.8 Paper and Fiber Technology –6.3 –0.4 7.8 –1.7 0.1 3.1 5.5 4.9 1.8 3.8 Valmet Automotive –1.4 –18.6 –78.6 1.4 –14.6 –64.5 –8.2 3.5 3.9 –7.6 Group Head Office and other n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Group Head Office and others total n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Metso total 4.8 5.3 9.5 4.1 5.9 5.9 10.2 7.8 7.8 8.0
Metso Annual Report www.metso.com QUARTERLY INFORMATION
Orders received
EUR million 1–3/09 4–6/09 7–9/09 10–12/09 2009 1–3/10 4–6/10 7–9/10 10–12/10 2010 Mining and Construction Technology 385 398 420 457 1,660 559 604 643 651 2,457 Energy and Environmental Technology 265 278 250 504 1,297 356 384 341 447 1,528 Paper and Fiber Technology 279 335 369 401 1,384 461 682 417 387 1,947 Valmet Automotive 21 14 7 14 56 11 17 20 36 84 Group Head Office and other ------Group Head Office and others total 21 14 7 14 56 11 17 20 36 84 Intra Metso orders received –8 –5 -15 –11 –39 –21 –16 –12 –23 –72 Metso total 942 1,020 1,031 1,365 4,358 1,366 1,671 1,409 1,498 5,944
Order backlog Mar 31, June 30, Sep 30, Dec 31, Mar 31, June 30, Sep 30, Dec 31, EUR million 2009 2009 2009 2009 2010 2010 2010 2010 Mining and Construction Technology 1,347 1,196 1,103 1,041 1,182 1,310 1,329 1,356 Energy and Environmental Technology 1,182 1,035 939 1,032 1,073 1,159 1,159 1,158 Paper and Fiber Technology 1,438 1,304 1,330 1,380 1,516 1,759 1,703 1,559 Valmet Automotive ------Group Head Office and other ------Group Head Office and others total ------Intra Metso order backlog –33 –23 –32 –38 –51 –52 –47 –50 Metso total 3,934 3,512 3,340 3,415 3,720 4,176 4,144 4,023
Personnel Mar 31, June 30, Sep 30, Dec 31, Mar 31, June 30, Sep 30, Dec 31, 2009 2009 2009 2009 2010 2010 2010 2010 Mining and Construction Technology 10,826 10,344 10,014 9,541 9,550 9,787 9,974 10,206 Energy and Environmental Technology 6,387 6,349 6,119 6,060 5,873 6,114 6,015 6,073 Paper and Fiber Technology 10,090 9,858 9,475 10,459 10,326 10,526 10,388 10,362 Valmet Automotive 618 636 636 679 705 723 668 1,425 Group Head Office and other 391 421 419 427 494 515 507 527 Group Head Office and others total 1,009 1,057 1,055 1,106 1,199 1,238 1,175 1,952 Metso total 28,312 27,608 26,663 27,166 26,948 27,665 27,552 28,593
www.metso.com Metso Annual Report
In the picture: Douglas Freire de Lima, Luis Balsamo (Fishing Project teacher), teacher), Project Balsamo (Fishing de Lima, Luis In the picture: Douglas Freire De Paula. Rosangela Santos da Silva Ferreira, Carolina Results through cooperation
Education for disadvantaged youth in Sorocaba program has been successful: 90 percent of the participants are now employed, staying A Brazilian saying goes ‘instead of giving fish away from crime and drugs. to the people, teach them how to fish.’ Since “It’s an excellent program that gave me bet- 1990, some 360 boys and girls from 16–18 ter professional opportunities. It’s important years old and coming from poor neighbor- that learning also extends beyond the class- hoods in Sorocaba, Brazil, have taken part in room. My family is proud of my achievements. the Fishing Project. Supported by Metso, the I now have more responsibility and am willing project complements their school education to learn new things. The project gave me the and provides them with basic mechanical and chance to be a trainee. Now I am studying in vocational skills. The target is to help them get an engineering college,” said Carlos, a former their first job and to move forward in life. The participant in the Fishing Project.
Metso Annual Report www.metso.com Metso Financial Statements 2010 Financial Statements 2010
Financial statements presented in the Annual Report are condensed from the audited financial statements of Metso Corporation and comprise the consolidated financial statements of Metso, the Board of Directors' report, as well as the income statement, balance sheet and statement of changes in the shareholders' equity of the Parent Company. Audited financial statements, including also notes to the Parent Company financial statements, are available on our website www.metso.com.
Table of Contents
Board of Directors’ Report 74 1 Accounting principles 88 2 Financial risk management 94 Consolidated Statements of Income 83 3 Critical accounting estimates and judgments 97 and Comprehensive Income 4 Selling, general and administrative expenses 99 Consolidated Balance Sheets 84 5 Other operating income and expenses, net 99 6 Personnel expenses and the number of personnel 100 Consolidated Statements of Cash Flows 86 7 Depreciation and amortization 102 8 Financial income and expenses, net 102 Consolidated Statements of Changes 87 9 Income taxes 102 in Shareholders’ Equity 10 Acquisitions 104 Notes to the Consolidated Financial Statements *) 88 11 Disposals of businesses 106 12 Earnings per share 106 Exchange Rates Used 136 13 Intangible assets and property, plant and equipment 107 14 Investments in associated companies 111 Financial Indicators 2006–2010 137 15 Available-for-sale equity investments 112 16 Percentage of completion 112 Formulas for Calculation of Indicators 138 17 Inventory 112 18 Change in net working capital 113 19 Interest bearing and non-interest bearing receivables 113 20 Financial assets and liabilities 114 Parent Company Statement of Income, FAS 139 21 Cash and cash equivalents 116 22 Equity 116 Parent Company Balance Sheet, FAS 140 23 Share-based payments 118 24 Long-term debt 120 Parent Company Statement of Changes 141 25 Provisions 121 in Shareholders’ Equity, FAS 26 Short-term debt 122 27 Trade and other payables 122 28 Post-employment benefit obligations 122 Shares and Shareholders 142 29 Mortgages and contingent liabilities 125 30 Lease contracts 126 Auditor’s Report 148 31 Derivative financial instruments 126 32 Group companies 127 33 Reporting segment and geographic information 129 *) The accompanying notes form an integral part of these Financial Statements. 34 Audit fees 134 35 Lawsuits and claims 134 36 New accounting standards 135 37 Events after balance sheet date 136
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Operating environment and demand in 2010 percent of all orders received. All the four BRIC (Brazil, Russia, India and The overall positive tone in the global economy and the gradual China) countries were among the seven largest countries measured in recovery of demand continued in most of our customer industries in new orders. The share of emerging markets in our orders received was 2010. The budget deficits of several European countries and the United 53 percent (48% in 2009). States together with high volatility in currency exchange rates cre- At the end of December, our order backlog was EUR 4,023 million, ated uncertainties in the financial markets, which overshadowed the which is 18 percent stronger than at the end of 2009 (EUR 3,415 mil- upswing in the markets. lion). Around EUR 3.1 billion of the deliveries in our order backlog are Many major mining companies have confirmed significant capi- expected to be recognized as net sales in 2011, and around EUR 850 tal investment programs for the coming years. As a result capacity million of these are services business orders. The order backlog at the expansion plans clearly increased, and the amount of quotations for end of 2010 included some EUR 375 million in projects (some EUR 500 equipment and projects continued to strengthen throughout the year. million on December 31, 2009) with uncertain delivery schedules and Several smaller mining companies still have financing challenges to which will, according to present estimates, be delivered after 2011. The push their projects forward but the situation is improving with them, uncertainties in the order backlog mostly concern the Fibria pulp mill too. Due to our large installed equipment base and our customers’ project in Brazil. growing production volumes, demand for our mining services also strengthened markedly during the year. Demand for mining equipment Net sales has so far related mostly to small and medium-size replacement and Our net sales for 2010 increased 11 percent on the comparison period expansion investments, but towards the end of the year there was a and were EUR 5,552 million (EUR 5,016 million in 2009). Excluding the clear increase in quotations for bigger new capacity expansion invest- effect from exchange rate translation, the growth in net sales would ments, too. Demand for equipment and services used in aggregates have been 4 percent. The growth came from Paper and Fiber Technol- production by the construction industry was strong throughout the ogy, which recorded an increase of 32 percent and from Mining and year in the emerging markets in Asia, Brazil and Eastern Europe, and Construction Technology, with an increase of 8 percent. Energy and showed first signs of recovery during the last quarter also in Europe Environmental Technology’s net sales declined 6 percent due to the and North America. low level of new orders in the previous year. Net sales for our services Demand for power plants utilizing renewable fuels was good in Eu- business increased 17 percent (excluding the impact of the acquired rope and North America; however, uncertainty in the financial markets Fabrics business the growth was 10 percent) and its share of the total and pending policies on support mechanisms for renewable energy net sales increased to 45 percent (42% in 2009). delayed final decisions on orders in several projects. Demand for our Measured by net sales, the largest countries were China, the United automation products clearly strengthened during the year as the oil, States and Brazil, which together accounted for 36 percent of our gas and petrochemical industries increased their investments due to total net sales. The share of emerging markets in our net sales was 50 the increase in energy prices and demand. Demand for metal and solid percent (44% in 2009). waste recycling equipment and related services also turned positive as a result of the global upswing in the demand for steel, but overall it still Financial result remained weak. In 2010 our EBITA before non-recurring items was EUR 491.0 million, Demand for new fiber lines, rebuilds and pulp mill services clearly i.e. 8.8 percent of net sales (EUR 399.0 million and 8.0% in 2009). The recovered during the year from the low levels of the past few years. improvement in our profitability resulted primarily from an increase Some large pulp mill projects in South America became active during of over one percentage point in the gross profit margin as a result of the second half of the year but competition remained tough. Demand higher capacity utilization rates and sales volumes. The EBITA margin in for tissue lines was strong both in the emerging as well as in the devel- 2010 was negatively affected by over one percentage point because of oped markets. Demand for paper and board lines was at the previous under-absorption in several manufacturing units while capacity utiliza- year’s satisfactory level with demand coming primarily from China and tion rates were still relatively low. Selling, general and administrative smaller size board machines. The improved capacity utilization rates in expenses increased on a comparable basis (excluding the impact of the paper and board industry kept the demand for our services busi- the acquired Fabrics business, currency translation and non-recurring ness good. items) less than 3 percent while we were preparing for increasing order and delivery volumes especially in Mining and Construction Orders received and order backlog Technology. The profitability improved in the Mining and Construction Orders received in 2010 totaled EUR 5,944 million, an increase of 36 Technology and Paper and Fiber Technology segments while Energy percent on the comparison period. Excluding the effect from exchange and Environmental Technology’s profitability remained at the level of rate translation, the growth would have been 27 percent. New orders the previous year. significantly increased in all business segments and in all geographical In 2010 our operating profit (EBIT) was EUR 445.2 million, i.e. 8.0 per- regions. Our customers’ improved capacity utilization rates were also cent of net sales (EUR 293.6 million and 5.9% in 2009). The EBIT includes reflected in the strong 36 percent growth (28% excluding the impact of EUR 11.8 million in non-recurring items, which had a positive impact the acquired Fabrics business) in our services orders compared to the (EUR 64.7 million in negative non-recurring items in 2009), as specified previous year. in the table next page. The three countries with the highest value of orders received were Group Head Office’s operating profit in 2010 includes foreign- ex China, the United States and Brazil, which together accounted for 37 change gains of EUR 10 million from foreign exchange hedge contracts
74 Metso Financial Statements 2010 www.metso.com
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made by reporting segments with Group Treasury (EUR 12 million gain Cash flow and financing in 2009). Corresponding foreign exchange losses are included in the Following the substantial reduction in net working capital and excep- operating results of the reporting segments. tionally strong overall operating cash flow in 2009, cash generation was Net financing expenses for 2010 were EUR 75 million (EUR 72 million also good in 2010. Net cash provided by operating activities amounted in 2009). Interest expenses were EUR 69 million (EUR 75 million in 2009). to EUR 506 million (EUR 770 million in 2009). Thanks to continued focus Net financing expenses include EUR 10 million in foreign exchange on working capital management, our net working capital decreased losses related to the above-mentioned Group Head Office’s foreign EUR 25 million in January-December in spite of increasing delivery exchange gain. volumes. Our profit before taxes was EUR 370 million (EUR 222 million in 2009), Free cash flow in 2010 was EUR 435 million (EUR 717 million in 2009). and our tax rate for 2010 was 30 percent (32% in 2009). Net interest bearing liabilities declined considerably and totaled EUR The profit attributable to shareholders in 2010 was EUR 257 million 310 million at the end of the year (EUR 583 million on December 31, (EUR 150 million in 2009), corresponding to earnings per share (EPS) of 2009). EUR 1.71 (EUR 1.06 per share in 2009). Our total cash assets at the end of 2010 were EUR 1,051 million, EUR Return on capital employed (ROCE) before taxes was 13.5 percent 406 million of which has been invested in financial instruments with an (10.0% in 2009) and the return on equity (ROE) was 13.6 percent (9.8% initial maturity exceeding three months. The remaining EUR 645 million in 2009). has been accounted for as cash and cash equivalents. In December, we Financial indicators for the years 2006–2010 are presented on page renewed the syndicated five-year EUR 500 million revolving credit facil- 137. ity. The facility is primarily to support short-term funding. Our liquidity position is good.
Non-recurring items and amortization of intangible assets
Mining and Energy and Paper and 2010 Construction Environmental Fiber Metso EUR million Technology Technology Technology Group EBITA before non-recurring items 264.8 139.0 107.6 491.0 % of net sales 11.8 9.7 5.8 8.8 Capacity adjustment expenses −1.8 −7.9 −7.3 −17.0 Gain on sale of Talvivaara shares 8.4 - - 8.4 Intellectual property related items 27.6 - - 27.6 Gain on business disposal 0.9 - - 0.9 Credit loss reserve related to two paper machine customers - - 0.9 0.9 Net effect for prior years’ ICMS (VAT) tax credits in Brazil −2.8 - −2.0 −4.8 Costs related to business acquisition projects - - - −4.2 Amortization of intangible assets 1) −6.7 −19.7 −28.9 −57.6 Operating profit (EBIT) 290.4 111.4 70.3 445.2
1) Includes EUR 32.9 million amortization of intangible assets acquired through business acquisitions.
Mining and Energy and Paper and 2009 Construction Environmental Fiber Metso EUR million Technology Technology Technology Group EBITA before non-recurring items 201.6 147.4 71.3 399.0 % of net sales 9.7 9.7 5.1 8.0 Capacity adjustment expenses −21.9 −11.1 −41.7 −74.7 Gain on sale of Talvivaara shares 23.1 - - 23.1 Hedging reversal due to a cancelled customer order - - −9.0 −9.0 Credit loss reserve related to two paper machine customers - - −4.1 −4.1 Amortization of intangible assets 1) −4.0 −18.2 −15.7 −40.7 Operating profit (EBIT) 198.8 118.1 0.8 293.6
1) Includes EUR 18.5 million amortization of intangible assets acquired through business acquisitions.
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In April, following the Annual General Meeting, we paid EUR 105 mil- Research and development lion in dividends for 2009. Our gearing continued to improve through- Our research and development activities focus on several areas that out the year and was 15.0 percent at the end of 2010 (32.5% in 2009) and are important in terms of sustainability and competitiveness, such as our equity to assets ratio was 38.1 percent (35.7% in 2009). energy and raw material efficiency, utilization of recycled raw materials, process control technology and, increasingly, new services business Capital expenditure solutions. We have concentrated our R&D work on projects that offer Our gross capital expenditure in 2010, excluding business acquisitions, the best potential for capitalizing on our future growth opportunities. was EUR 135 million (EUR 117 million in 2009). The share of maintenance Our research and development expenses were EUR 111 million in 2010, investments was 58 percent, i.e. EUR 78 million. Capital expenditure in- i.e. 2.0 percent of Metso’s net sales (EUR 115 million and 2.3% in 2009). cluded two small technology related investment; in April we purchased In addition to this, expenses for intellectual property rights amounted the paper machine web inspection and web break system business and to EUR 18 million in 2010 (EUR 15 million in 2009). Our R&D resources took over about 30 people, and in August we invested in rubber belt are spread throughout about 40 networked units in Europe, North related business with 16 people to complement our service and prod- America, South America and Asia and employed 829 people (763 in uct offering to the pulp and paper industry. We estimate new capital 2009) in 2010. Our personnel made approximately 780 invention disclo- expenditure in 2011 to increase 10–20 percent on 2010. sures during the year (620 in 2009), which led to more than 180 priority The first phase of our largest single industrial investment so far, patent applications (200 in 2009). At the end of the year, approximately Metso Park in India, was completed in March and the second phase has 3,000 Metso inventions were protected by patents (3,000 in 2009). In been initiated. A technology center specializing in automation and flow 2010, we launched a new, EUR 10 million stimulus package to accelerate control solutions and products was inaugurated in May in Shanghai, our long-term strategic R&D and innovation activities. The program was China. In York, Pennsylvania, USA, Mining and Construction Technology focused on R&D supporting the growth of environmental and services took up new office premises under operating lease arrangements in business. May. In June, construction work was started in Vantaa for a new facility Focus areas of our R&D during 2010 were services business, energy to strengthen our global industrial valve production. This investment and environmental efficiency as well as features aimed at improving will also be accounted as an operating lease. In Araucaria, Brazil, profitability of our customers’ investments. New products included, construction work on a new facility for our regional pulping and power for example, service offerings for mining customers in which they can operations has been started. In Jyväskylä, Finland, we completed an select inspection, site supervision, maintenance, process optimization upgrade of a pilot machine at the Paper Technology Center. In Zibo, our and complete maintenance services and even performance contracts third service center in China for the pulp and paper industry was inau- with risk and profit sharing options. Another example is a new energy- gurated in November. Investment projects in global enterprise resource saving layering concept for various packaging board grades reducing planning (ERP) systems are underway in Mining and Construction customers’ initial investment and operational costs. Technology and in the Automation business. Mining and Construction During the year, we launched several R&D cooperation projects with Technology’s ERP project is estimated to be completed during the first our partners, such as an industrial-scale development project for tor- half of 2011. refaction with Swedish Bio Energy Development North AB. The target is to install an industrial-scale development unit in Örnsköldsvik, Sweden, Acquisitions, divestments and joint ventures for torrefaction of wood biomasses and residues from the agricultural In November, the two investment companies Pontos Group and Finnish sector. Torrefaction is a mild pyrolysis process, whereby “green coal” is Industry Investment Ltd invested through a directed share issue a total produced from biomass. Green coal is a sustainable fuel and will play of EUR 20 million into our automotive business, thereby giving them a an important part as a substitute for fossil coal in power generation total shareholding of 34 percent in Valmet Automotive. Valmet Auto- and gasification processes. In cooperation with Stora Enso and Domtar motive’s key management will be committed and incentivized through we established a long-term project to develop a future pulp mill bio- a separate directed share issue under which the management will refinery based on new pulping technology. The target is to develop a invest in Valmet Automotive, too. After these arrangements, Metso’s new concept that improves the energy efficiency and cost effectiveness ownership in the company will be somewhat over 60 percent. of the process, has lower initial capital investment costs and reduces In connection with the above mentioned transaction, Valmet Auto- fiber usage, however without affecting its properties important to motive acquired Karmann’s convertible roof systems in Germany and paper and board quality. Poland. The acquired roof business employs over 700 people and the We are also expanding our product development activities to net sales were about EUR 170 million in 2010. As one of three leading emerging markets with a target to localize and customize our products suppliers of roof systems, Karmann has a market share of about 25 for the needs of new markets. We use our global product designs as percent and delivery agreements spanning several years. basic development platforms which we then engineer locally. These In July, we acquired the repair service business of Wyesco of Louisi- products are also designed to use locally available materials and ana, L.L.C., in the U.S. state of Louisiana. The business was affiliated to components and to be manufactured locally. For example in 2010 our the Paper and Fiber Technology segment and it employs 30 people. Indian engineering team developed the first track-mounted crushing In May, we completed the divestment of the Flexowell conveyor belt unit primarily for the Asian market and to be manufactured in India. operations in Germany to ContiTech Transportbandsysteme GmbH. The first units will be available for sale in 2011. Another good example is Flexowell was part of the Mining and Construction Technology seg- a small size recovery boiler designed by the Indian power engineering ment. unit to be manufactured locally in India. The first boilers have already In November 2009, we concluded a combination agreement with been delivered to customers. Tamfelt, one of the world’s leading suppliers of technical textiles. The remaining 2 percent of Tamfelt’s shares were redeemed in accordance Environment and environmental technology with the Finnish Companies Act, and in May 2010 Metso gained title to The environmental impact of our own production is minor and relates all the shares in Tamfelt. Since December 2009, Tamfelt has been a part mainly to the consumption of raw materials and energy, emissions to of our Paper and Fiber Technology segment and today constitutes the air, water consumption and waste. We are continuously improving our segment’s Fabrics business line. environmental management practices and the eco-efficiency of our production facilities, as well as developing our cooperation, towards
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greater environmental efficiency with our subcontractors and the million. The average maturity for our long-term debt is 2.8 years. Less entire supply chain. than one third of our long-term debt will mature by the end of 2011. We set in 2009 Metso-wide global energy savings and carbon dioxide There are no prepayment covenants in our debt facilities that would emissions targets for our production operations in an effort to reduce be triggered by changes in credit ratings. Some of our debt facilities our energy consumption and emissions by 15 percent by 2015 and 20 include financial covenants related to capital structure. We fully meet percent by 2020, in line with the EU goals. Our first projects targeted at the covenants and other terms related to our financing agreements. reaching those goals were launched in 2010. The levels of net working capital and capital expenditure have a fun- Many of Metso’s technology solutions have been developed in close damental effect on the adequacy of financing. We have developed our cooperation with our customers. The solutions are related to renew- practices and the supporting information systems relating to managing able energy sources, energy efficiency of our customers’ production net working capital and we expect that these will improve our ability processes, waste management, recycling, efficient utilization of raw to control movements in our net working capital as delivery volumes materials and water, reducing dust, noise, carbon dioxide and particle experience an upswing. As a result of these investments we estimate to emissions, and process optimization, to name a few. be well-positioned to keep our capital expenditure at a moderate level We also provide training, maintenance and other services related to in the coming years. our technology to secure efficient and sustainable use of the processes At the end of 2010 we had EUR 880 million of goodwill on our bal- and equipment we have delivered. ance sheet which is mainly related to business acquisitions made over the last 10 years. We conduct impairment tests regularly once a year Risks and business uncertainties and more frequently if needed, and have not detected any impairment. Our operations are affected by various strategic, financial, operational The sensitivity tests performed in connection with the annual impair- and hazard risks. We take measures to manage and limit the potential ment test indicated that there could be risk of impairment for the adverse effects of these risks. If such risks materialized, they could have goodwill allocated to the Fabrics business acquired in 2009 in case our material adverse effects on our business, financial situation, and operat- business environment would adversely differ from our assumptions. ing result or on the value of Metso shares and other securities. However, we do not believe that the assumptions used in the sensitiv- Our risk assessments take into consideration the probability of the ity tests are likely to be realized in the near future. risks and the estimated impact of them on our net sales and financial Changes in labor costs, the prices of raw materials and components results. The management estimates that the overall risk level of the can affect our profitability. Currently there are also high inflationary company is currently manageable in proportion to the scope of our pressures. On the other hand, some of our customers are raw material operations and the practical measures available to manage these risks. producers, whose ability to operate and invest may be enhanced by The budget deficits in many European countries and the United strengthening raw material prices and hampered by declining raw States with potential negative impact on funding from capital markets material prices. coupled with strong fluctuations in exchange rates have increased the Currency exchange rate risks are among the most substantial finan- uncertainty which could slow the economic recovery particularly in cial risks. Exchange rate changes can affect our business, although the Europe and North America. Despite this, we estimate that the business wide geographical scope of our operations decreases the impact of any environment in our main customer industries continues to gradually individual currency. In general, uncertainty in the economy is likely to improve because of the global megatrends like emerging markets increase exchange rate fluctuations. We hedge the currency exposures growth, urbanization and increasing importance of environmentally that arise from firm delivery and purchase agreements. sustainable process solutions. We estimate that the high share of our business derived from services and emerging markets will diminish the The United States Department of Justice possible negative effects that market uncertainties may have. has closed its investigations related to the 2006 If the recovery in the global economy is interrupted, it might have subpoena received by Metso adverse effects on new projects under negotiation or on projects in In July 2010, Metso was informed by the Antitrust Division of the United our order backlog. Some projects may be postponed or they may be States Department of Justice that it had closed its investigation of the suspended or canceled. At the moment less than 10 percent of orders rock crushing and screening equipment industry. In late 2006, Metso in the order backlog are subject to uncertainties relating to delivery Minerals Industries, Inc. had received a subpoena from the Antitrust schedules. In long-term delivery projects the initial customer down Division of the United States in which it called us to produce certain payments are typically 10–30 percent of the value of the project, in documents related to an investigation of potential antitrust violations. addition to which the customer makes progress payments during the No further action has been brought against any party. project execution. This significantly decreases our risk and financing requirements related to these projects. We continually assess our cus- Personnel tomers’ creditworthiness and ability to meet their obligations. As a rule, At the end of the year, we had 28,593 employees, which was 5 percent we do not finance customer projects. and 1,427 employees more than at the end of 2009 (27,166 employees We have adjusted our capacity and cost structure in order to main- on December 31, 2009). Taking into account the impact of the acquired tain our competitiveness. Also our suppliers have strongly adjusted and divested businesses the increase in the number of personnel is 714 their capacity during the past two years and it is possible that now people. On a comparable basis, the number of employees increased by with the demand picking up suppliers’ ability to supply raw materials, over 700 employees in Mining and Construction Technology which is components and subcontracting services may have weakened, which preparing for continued upswing in the business volumes. The number may result in delivery problems. If the recovery of the global economy of employees decreased in Paper and Fiber Technology by about 100 is interrupted, the markets for our products may contract, which may people. The amount of personnel grew most in the South and Central lead to tightening price competition. America with high activity levels especially in the mining business. Securing the continuity of our operations requires that sufficient The share of our personnel in emerging markets increased to 34 funding is available under all circumstances. We estimate that our cash percent (31%). During January–December, we had an average of 27,585 assets totaling EUR 1,051 million and available credit facilities are suf- employees. ficient to secure short-term liquidity. Our committed credit facility, with Mining and Construction Technology employed 36 percent, Energy five year maturity, is available for withdrawal and amounted to EUR 500 and Environmental Technology 21 percent, Paper and Fiber Technol-
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ogy 36 percent, and Valmet Automotive, shared service centers and is currently President, Energy and Environmental Technology. Harri Group Head Office 7 percent of our personnel. The countries with the Nikunen was appointed Metso Group’s Chief Financial Officer. He is cur- largest numbers of personnel were Finland, China, the United States, rently Senior Vice President, Finance, Paper and Fiber Technology. Merja Sweden and Brazil. These countries employed 67 percent of Metso’s Kamppari, Senior Vice President, Human Resources, Metso Group, was total personnel. appointed as a member of the Metso Executive Team. Kalle Reponen, Senior Vice President, Strategy and M&A, will continue as a member of Personnel by area the Metso Executive Team. Dec 31, 2009 Dec 31, 2010 Change % As of March 1, 2011, all of the above-mentioned individuals will report Finland 8,746 8,748 0 to Matti Kähkönen, who will be Chairman of the new Metso Executive Other Nordic countries 2,995 2,880 −4 Team. Other European countries 3,678 4,183 14 Metso’s current CFO, Olli Vaartimo, and the current President of Paper North America 3,428 3,491 2 and Fiber Technology, Bertel Langenskiöld both turned 60 during the South and Central America 2,618 3,166 21 autumn and reached the age of retirement according to their executive Asia-Pacific 4,316 4,700 9 contracts. They both have agreed to continue in their positions until Africa and Middle East 1,385 1,425 3 March 1, 2011 and to support the changes in Metso’s top management Total 27,166 28,593 5 during the transition period until the end of June, when needed. Vaar- timo and Langenskiöld will step down from the Metso Executive Team During 2010, we continued to develop our leadership skills, defined as of March 1, 2011. Metso Leadership Principles and started implementing them as part of leaders’ development discussions. We also developed our employee Financial targets and dividend policy performance and development processes and carried out Metso’s inter- In connection with our annual strategy process in August, our long- national training programs with special focus on fostering leadership term financial targets were evaluated and kept unchanged. skills and Metso-wide collaboration. In 2010 we continued the global implementation of our occupational Decisions of the Annual General Meeting health and safety monitoring system, OHS Monitor, and at the moment Our Annual General Meeting on March 30, 2010 approved the Financial there are 18,000 Metso employees within the sphere of the system. All Statements for 2009 and decided to discharge the members of the observed risks related to occupational health and safety are collected Board of Directors and the President and CEO from liability for the into the OHS Monitor and by analyzing them our target is that similar financial year 2009. The Annual General Meeting approved the propos- incidents can be prevented. Our long-term target is zero occupational als of the Board to authorize the Board to resolve on a repurchase of accidents. Metso’s own shares, on share issue and granting of special rights and The salaries and wages of Metso employees are determined on the on donations to universities. The Annual General Meeting also ap- basis of local collective and individual agreements, employee perfor- proved the proposal to amend Article 8 (notice convening a meeting) mance and job evaluations. Basic salaries and wages are complement- of the Articles of Association. ed by performance-based compensation systems. In 2010, altogether The AGM decided that a dividend of EUR 0.70 per share will be paid EUR 1,106 million were paid in salaries and wages (EUR 991 million in for 2009. The dividend was paid on April 13, 2010. 2009). Indirect employee costs were EUR 319 million in 2010 (EUR 303 The AGM elected Jukka Viinanen Chairman of the Board and Maija- million in 2009). Liisa Friman Vice Chairman of the Board. Erkki Pehu-Lehtonen and Mikael von Frenckell were elected as new members of the Board. The Corporate Governance Statement Board members re-elected were Christer Gardell, Yrjö Neuvo and Pia We have prepared a separate Corporate Governance Statement of 2010 Rudengren. which follows the recommendations of the Finnish Corporate Gov- The AGM decided that the annual remunerations for Board mem- ernance Code for listed companies. It also covers other central areas bers would be EUR 92,000 for the Chairman, EUR 56,000 for the Vice of corporate governance. The statement is presented in this Annual Chairman and EUR 45,000 for the members and that they be paid EUR Report on pages 149–164. 600 for each meeting they attend, including committee meetings. Based on the decision of the AGM, the Board members have used 40 Changes in top management percent of their annual remuneration to buy Metso shares. The Board In August, Metso’s Board of Directors appointed Mr. Matti Kähkönen, members acquired the shares from the market within two weeks after M.Sc. in Engineering, as the new President and Chief Executive Officer the publication of the first-quarter 2010 interim report on April 29, 2010. of Metso Corporation and Metso Group. Kähkönen will start in his new Altogether 5,580 shares were acquired, which is 0.004 percent of total position on March 1, 2011, when Metso’s current President and CEO, amount of Metso shares. There are no specific principles for the owner- Jorma Eloranta, will retire. Until then, Kähkönen will continue as Presi- ship of the above-mentioned shares. dent of Metso’s Mining and Construction Technology segment. The auditing company, Authorized Public Accountants Pricewater- As of October 1, 2010, Kähkönen took over also as Metso’s Executive houseCoopers Oy, was re-elected as our auditor until the end of the Vice President and Deputy to the CEO and as Vice Chairman of the next AGM. Metso Executive Team. The AGM decided to establish a Nomination board of the AGM to In December, Metso’s Board of Directors announced the changes in prepare proposals for the following AGM regarding the composition of Metso’s Executive Team, to take effect on March 1, 2011. Andrew Benko the Board and director remuneration. Representatives of the four big- was appointed President, Mining and Construction Technology. He is gest shareholders were elected to the Nomination board based on the currently President, Equipment and Systems business line, Mining and ownership information as of November 1, i.e Solidium Oy, Cevian Capi- Construction Technology. Perttu Louhiluoto was appointed President, tal II Master Fund L.P., Varma Mutual Pension Insurance Company and Energy and Environmental Technology. Louhiluoto is currently Senior Ilmarinen Mutual Pension Insurance Company. They have named the Vice President, EMEA market area, Mining and Construction Technol- following people as their representatives for Metso’s Nomination Board: ogy. Pasi Laine was appointed President, Paper and Fiber Technology, Kari Järvinen, Managing Director (Solidium Oy); Lars Förberg, Manag- and Metso’s Executive Vice President and Deputy to the CEO. Laine ing Partner (Cevian Capital); Matti Vuoria, Managing Director, President
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and CEO (Varma Mutual Pension Insurance Company), and Harri Sailas, at the beginning of the program. Any possible reward from the plan President and CEO (Ilmarinen Mutual Pension Insurance Company). requires continued employment with Metso and reaching the financial Jukka Viinanen, Chairman of Metso’s Board of Directors serves as the targets set for the plan. At the end of 2010, the plan had 88 participants Nomination Board’s expert member. and the rewards that can be paid correspond to a maximum of 369,925 On the basis of the decision by the AGM, Metso paid in 2010 a dona- Metso shares. Members of the 2010 Executive Team may receive a maxi- tion of EUR 1.9 million to the Aalto University Foundation and to other mum of 77,400 shares as share rewards. Finnish universities as follows: EUR 350,000 to Tampere University of Technology’s TTY Foundation; EUR 100,000 to the University of Jyväs- Share Ownership Plan for 2010–2012 (SOP 2010–2012) kylä; and EUR 50,000 each to Åbo Akademi University, the Lappeen- In October 2009, the Board of Directors approved a similar kind of ranta University of Technology and the University of Oulu. The donation share ownership plan for the years 2010–2012. The plan has one three- authorization granted by the AGM was exercised in full. year earnings period and required participants’ personal investment in Metso shares at the beginning of the program. Any possible reward Members of Board committees from the plan requires continued employment with Metso and reach- and personnel representative ing the financial targets set for the plan. At the end of 2010, the plan Our Board elected members from among the Board for the Audit Com- had 91 participants and the rewards that can be paid correspond to mittee and Remuneration and HR Committee at its assembly meeting a maximum of 339,350 Metso shares. Members of the 2010 Executive on March 30, 2010. The Board’s Audit Committee consists of Pia Ruden- Team may receive a maximum of 77,400 shares as share rewards. gren (Chairman), Maija-Liisa Friman and Erkki Pehu-Lehtonen. The Board’s Remuneration and HR Committee consists of Jukka Viinanen Share Ownership Plan for 2011–2013 (SOP 2011–2013) (Chairman), Mikael von Frenckell, Christer Gardell and Yrjö Neuvo. In September 2010, the Board of Directors approved a share ownership Metso’s personnel groups in Finland have elected Jukka Leppänen as plan for 2011–2013. The plan includes one three-year earnings period. the personnel representative. Pursuant to the Finnish Act on Person- The plan requires participants’ personal investment in Metso shares nel Representation in the Administration of Undertakings, a personnel at the beginning of the program. Any possible reward from the plan representative participates in the meetings as an invited expert with no requires continued employment with Metso and reaching the financial voting rights or legal liability for the Board’s decisions and his term of targets set for the plan. At the end of 2010, 74 people had confirmed office is the same as the Board members’ term. their participation in the plan and the rewards that can be paid cor- respond to a maximum of 251,698 Metso shares. The shares for the Shares and share capital plan are acquired in public trading and therefore the plan will not have At the end of December 2010, our share capital was EUR 240,982,843.80 diluting effect on the share value. Members of the new Executive Team and the number of shares was 150,348,256. The number of shares (as of March 2011) may receive a maximum of 77,400 shares as share includes 718,397 Metso shares held by the Parent Company, which rewards. represent 0.5 percent of all the shares and votes. The average number of shares outstanding in January-December of 2010, excluding Metso Reporting segments shares held by the Parent Company, was 149,682,703 and the average Mining and Construction Technology number of diluted shares was 149,836,864. During February-March 2010, we executed a repurchase of 300,000 EUR million 2009 2010 of our own shares relating to our share-based management incen- Net sales 2,075 2,235 tive program decided in October 2009 (Metso Share Ownership Plan Net sales of services business 1,017 1,139 2010–2012). The average purchase price of the shares was EUR 23.49 and % of net sales 49 51 the total acquisition price EUR 7,047,343.89. Earnings before interest, tax, amortization (EBITA) and non-recurring items 201.6 264.8 During January-December, 8,780 shares were returned from Metso % of net sales 9.7 11.8 Share Ownership Plan participants to the parent company due to Operating profit 198.8 290.4 employment terminations. % of net sales 9.6 13.0 Market capitalization of Metso, excluding the shares held by the Par- Orders received 1,660 2,457 ent Company, was EUR 6,255 million on December 31, 2010 (EUR 3,693 Orders received of services business 970 1,223 million on Dec 31, 2009). Order backlog, Dec 31 1,041 1,356 Metso Board members and their interest parties held altogether Personnel, Dec 31 9,541 10,206 116,172 shares on December 31, 2010, which is 0.08 percent of the total amount of shares and votes in Metso. The Metso Executive Team and their interest parties held altogether 81,707 Metso shares at the end The net sales of Mining and Construction Technology increased 8 per- of December, which is 0.05 percent of the total amount of shares and cent on the comparison period and were EUR 2,235 million. Excluding votes. The holdings of the Board and Executive Team equaled 0.13 the impact of exchange rate translation, net sales would have declined percent of the total amount of shares and votes in Metso. by 2 percent. In the mining business, net sales grew 10 percent and in Metso is not aware of any shareholders’ agreements regarding the the construction business 4 percent. The services business net sales ownership of Metso shares or voting rights. increased 12 percent and accounted for 51 percent of the segment’s net sales (49% in 2009). Share based incentive plans Mining and Construction Technology’s EBITA before non-recurring Metso’s share ownership plans are part of the remuneration and com- items was EUR 264.8 million (non-recurring items are analyzed in the mitment program for Metso management. ‘Financial result’ section), i.e. 11.8 percent of net sales in January– December (EUR 201.6 million and 9.7% in 2009). Improved capacity Share Ownership Plan for 2009–2011 (SOP 2009–2011) utilization rates contributed positively to the profitability, while on the In October 2008, the Board of Directors approved a share ownership other hand, profitability was weakened due to the 4 percent underlying plan for the years 2009–2011. The plan has one three-year earnings increase in selling, general and administrative expenses when prepar- period and required participants’ personal investment in Metso shares ing for higher market activity and delivery volumes in 2011.
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Operating profit (EBIT) for January–December was EUR 290.4 million, several sizable metal and solid waste recycling shredder orders. The i.e. 13.0 percent of net sales (EUR 198.8 million and 9.6% in 2009). EBIT increase in services orders was 35 percent. includes positive non-recurring items of EUR 32.3 million net, while in The order backlog at the end of 2010, EUR 1,158 million, was 12 2009 non-recurring items strengthened the EBIT by EUR 1.2 million. percent higher than at the end of 2009. The order backlog includes Orders received by Mining and Construction Technology in January– projects worth about EUR 90 million with uncertain delivery schedules. December grew 48 percent from the comparison period and totaled The uncertainty is mostly related to the deliveries of power boiler and EUR 2,457 million. Orders received grew in all geographical regions. automation technology for Fibria’s pulp mill project in Brazil. Orders from mining customers increased 61 percent and orders from construction customers 25 percent. Orders received from emerging Paper and Fiber Technology markets grew almost 80 percent and totaled 61 percent of all the seg- ment’s orders received (51% in 2009). New orders received in January– EUR million 2009 2010 December included grinding equipment deliveries for the Kinross Gold Net sales 1,408 1,856 goldmine in Brazil, mining equipment for Tisco’s iron ore processing Net sales of services business 569 766 plant in China and mining and minerals processing equipment and % of net sales 41 41 services for Nordic Mines’ new gold ore processing plant in Finland. The Earnings before interest, tax, amortization (EBITA) and non-recurring items 71.3 107.6 increase in services orders was 26 percent. % of net sales 5.1 5.8 The order backlog strengthened 30 percent during the year and Operating profit 0.8 70.3 totaled EUR 1,356 million at the end of December (EUR 1,041 million % of net sales 0.1 3.8 on December 31, 2009). At the end of December our order backlog Orders received 1,384 1,947 included mining equipment orders that are subject to uncertainties, Orders received of services business 524 814 primarily related to delivery schedules, of around EUR 50 million. Order backlog, Dec 31 1,380 1,559 Energy and Environmental Technology Personnel, Dec 31 10,459 10,362
EUR million 2009 2010 The net sales of Paper and Fiber Technology grew 32 percent in Janu- Net sales 1,523 1,435 ary–December and were EUR 1,856 million. Excluding the impact of Net sales of services business 516 547 exchange rate translation net sales would have grown by 26 percent. % of net sales 35 39 The growth in net sales came from all business lines. The comparable Earnings before interest, tax, amortization net sales growth, i.e. excluding the impact of exchange rate translation (EBITA) and non-recurring items 147.4 139.0 and the acquired Fabrics business, was 16 percent. The net sales of the % of net sales 9.7 9.7 services business increased 35 percent and accounted for 41 percent Operating profit 118.1 111.4 of the net sales (41% in 2009). The growth in the services business’ net % of net sales 7.8 7.8 sales excluding the acquired Fabrics business line was 9 percent. Orders received 1,297 1,528 Paper and Fiber Technology’s EBITA before non-recurring items was Orders received of services business 443 599 EUR 107.6 million, i.e. 5.8 percent of net sales (EUR 71.3 million and 5.1% Order backlog, Dec 31 1,032 1,158 in 2009). The improvement in profitability resulted primarily from the Personnel, Dec 31 6,060 6,073 strengthened profitability in the services business and from strong net sales growth. Fourth quarter profitability was negatively impacted by The net sales of Energy and Environmental Technology were EUR 1,435 delivery mix both in the capital and services part of the business and million, a decrease of 6 percent on the comparison period due to weak by an increase in provisions in some projects where new technologies order intake in 2009. Excluding the impact of exchange rate transla- were launched. tion, net sales would have declined by 10 percent. Net sales declined 8 Operating profit (EBIT) for January–December was EUR 70.3 million, percent in the Power business, 4 percent in the Automation business i.e. 3.8 percent of net sales (EUR 0.8 million and 0.1% in 2009). The EBIT and 5 percent in the Recycling business. The services business net sales includes non-recurring items (non-recurring items are analyzed in the increased 6 percent and accounted for 39 percent of the segment’s net ‘Financial result’ section), which weaken the EBIT by a total of EUR 8.4 sales (35% in 2009). million (non-recurring items in 2009 weakened the EBIT by EUR 54.8 Energy and Environmental Technology’s EBITA before non-recurring million). items was EUR 139.0 million, i.e. 9.7 percent of net sales (EUR 147.4 mil- Overall, the value of orders received by Paper and Fiber Technology lion and 9.7% in 2009). Successful execution of large delivery projects increased 41 percent and was EUR 1,947 million. New orders from paper had a positive impact on profitability, whereas the decline in net sales and board customers decreased 6 percent and orders from the pulp had a negative impact. industry were up 131 percent on the exceptionally weak comparison pe- Operating profit (EBIT) for January–December declined and was EUR riod. Orders from tissue customers grew 81 percent. The increase in ser- 111.4 million, i.e. 7.8 percent of net sales (EUR 118.1 million and 7.8% in vices orders was 55 percent (24 percent without the Fabrics business). 2009). The EBIT includes EUR 7.9 million non-recurring expenses (non- Among the orders received in 2010 were board-making technology and recurring items are analyzed in the ‘Financial result’ section) primarily machinery for Cheng Loong in Taiwan, for Saica Containerboard in the related to capacity adjustment actions (non-recurring expenses EUR 11.1 UK as well as for Zhejiang Ji’An in China, a fine paper line for APRIL Fine million in 2009). Paper (Guangdong) in China, a kraft pulp mill for Japanese Oji Paper to Orders received by the segment increased 18 percent on the com- China and the main technology for Ilim Group’s new kraft pulp mill in parison period and totaled EUR 1,528 million. Orders received increased Bratsk, Russia. in all of the business lines. Major orders received include biomass boil- At the end of December, the order backlog was EUR 1,559 million. ers for Bomhus Energi in Sweden, RWE npower renewables in the UK Around EUR 240 million of the order backlog include uncertainties, and for 4Ham Cogen in Belgium. In addition, several automation orders which relates to the pulp mill project for Fibria in Brazil, for which the for power plants, pulp mills, paper, board and tissue lines as well as oil delivery schedule is still open. and gas projects were received. In the Recycling business we received
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Valmet Automotive The new Board of Directors will invite the personnel representative as Valmet Automotive’s net sales grew clearly towards the end of the its external expert in its organizing meeting after the Annual General year and totaled EUR 84 million (EUR 56 million in 2009). Net sales for Meeting. the last quarter were EUR 36 million i.e 43 percent of the full year net Kari Järvinen acted as the Chairman of the Nomination Board and sales. The EBITA before non-recurring items in 2010 was EUR 4.6 million the other members were Lars Förberg, Matti Vuoria and Harri Sailas. negative (EUR 8.1 million negative in 2009). EBITA includes EUR 1 million Jukka Viinanen was the Nomination Board’s expert member. negative results from the acquired Karmann roof business, consoli- dated from November 21, 2010, due to seasonally low delivery volumes Short-term outlook in December. Valmet Automotive Finland’s EBITA improved clearly We estimate that the gradual recovery will continue in most of our towards the end of the year in line with the volume increase and was customer industries this year. In the emerging markets the outlook for the last quarter EUR 3.6 million. continues strong. The uncertainty caused by the budget deficits in At the end of December, Valmet Automotive employed 1,425 people several European countries and the United States, availability of fund- (679 people on December 31, 2009), 737 of whom are a part of the ing and fluctuations in the exchange rates may, however, slow down acquired roof business. the recovery, especially in Europe and North America. We anticipate Today, the enlargened service portfolio of Valmet Automotive that the improving capacity utilization rates of our customer industries includes engineering, manufacturing and business services as well as will support our services business, and most of our customers are convertible roof systems for the automotive industry. In Uusikaupunki, expected to gradually regain their confidence to invest in existing and Finland the series production of the plug-in hybrid car Fisker Karma is new capacity. planned to start in the first quarter of 2011 after the manufacturing of Metal prices have continued to increase primarily due to strong pre-series cars. The electric vehicles THINK City and Garia golf car as demand in China and India as well as stabilization of the US economy, well as Porsche Cayman sports car are also in production. The assembly together with tight supply in several metals such as copper and iron contract with Porsche AG is expected to end by the end of 2011. The ore. The number of quotations for equipment and projects from min- current customers of the roof systems business in Osnabrück, Germany ing companies has strongly increased since the beginning of 2010, and in Zary, Poland, include BMW/MINI, Daimler, Renault and Bentley. especially during the latter half of the year. This has had a clear positive Valmet Automotive has also engineering projects under way for several impact on our orders so far, and we expect stronger activity in larger customers. projects this year since the industry players have confirmed significant capital investment programs for the coming years. Due to the strength- Metso’s Nomination Board proposes eight members ening demand for minerals and our large installed equipment base, we to the Board of Directors expect demand for our mining services to continue strong. The Nomination Board established by Metso’s Annual General Meeting In the Asia-Pacific region and Brazil strong economic growth con- proposes to the next Annual General Meeting, which is planned to be tinues and infrastructure construction projects are maintaining good held on March 30, 2011, that the number of Board of Directors members demand for construction equipments. We anticipate that demand for is eight. equipment used in aggregates production by the construction industry The Nomination Board proposes to the Annual General Meeting that in Europe and in North America will gradually start to recover in 2011 the present members of the Board of Directors Mikael von Frenckell, thanks to the delayed replacement cycle but still remain weak. We Maija-Liisa Friman, Christer Gardell, Yrjö Neuvo, Erkki Pehu-Lehtonen, estimate that demand for our services business for the construction Pia Rudengren and Jukka Viinanen would be re-elected. In addition, it industry will remain satisfactory. is proposed to elect Ozey K. Horton, Jr as a new member of the Board Demand for power plants that utilize renewable energy sources is of Directors. expected to be good in Europe and North America in 2011. Several The Nomination Board proposes to the Annual General Meeting European countries and the United States have published targets to that the annual remuneration payable to the members of the Board increase the use of renewable energy and this is expected to support of Directors be equal to the remuneration payable to the current demand for our power plant solutions fuelled by biomass and waste. members of the Board of Directors based on the decision of the Annual However, uncertainty in the financial markets and pending poli- General Meeting 2010, however, with the change that the remunera- cies over support mechanisms for renewable energy may delay final tion payable to the Chairman of the Audit Committee be equal to the decisions in some of the projects under negotiations. Demand for the remuneration payable to the Vice Chairman of the Board of Directors: power plant services business is expected to be good. EUR 92,000 for the Chairman of the Board of Directors, EUR 56,000 for We estimate that demand for our automation products will con- the Vice Chairman of the Board of Directors and for the Chairman of tinue to be good in 2011, as the oil, gas and petrochemical industries the Audit Committee, and EUR 45,000 for each member of the Board of increase their investments due to the improvement in energy prices Directors. In addition, the Nomination Board proposes that a meeting and demand. Demand for automation products in the pulp and paper fee in the amount of EUR 600 shall be paid for those members whose industry is also expected to develop favorably. Demand for our services place of residence is in Nordic countries, EUR 1,200 for those members business for automation solutions is expected to be good. whose place of residence is elsewhere in Europe and EUR 2,400 for We expect the demand for metal and solid waste recycling equip- those member whose place of residence is outside of Europe for the ment to be satisfactory. Demand for recycling equipment services is ex- meetings attended, including the meetings of the committees of the pected to continue improving over the coming quarters as the capacity Board of Directors. The Nomination Board proposes that 40 percent of utilization rates of our customers’ plants and equipment improve. the annual remunerations are paid in Metso shares acquired from the Demand for new fiber lines, rebuilds and pulp mill services has clear- market. The shares shall be acquired directly on behalf of the Board ly recovered from the low levels of the past few years. We expect the members within two weeks from the release of interim report for fiber line equipment market to continue to be active in 2011 with a tight January 1 – March 31, 2011. competitive environment for large new projects. Demand for paper The Nomination Board notes that a personnel representative will and board lines is expected to be satisfactory and for tissue lines good participate as an external expert in the Metso Board meetings also in in 2011. We expect the improved capacity utilization rates of the paper the next Board term within the limitations imposed by Finnish law. and board industry to boost the demand for our services business.
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Based on the development in 2010 and assuming that the gradual was 25 percent of earnings per share because of the financial mar- recovery of the global economy will continue, we estimate that our ket turmoil at that point of time. net sales in 2011 will grow over 10 percent compared to 2010 and EBITA The dividend is paid to a shareholder who on the record date before non-recurring items will improve. Our estimate is based on our April 4, 2011 is registered as a shareholder in the company’s share- order backlog of EUR 4.0 billion at the end of 2010, which contains holders’ register maintained by Euroclear Finland Ltd. The dividend orders worth about EUR 3.1 billion for 2011. is paid on April 12, 2011. The estimates for our financial performance in 2011 are based on All the outstanding shares on the dividend record date will be Metso’s current market outlook and business scope as well as foreign entitled to a dividend, except for the own shares held by the Parent exchange rates similar to the end of 2010. Company.
Board of Directors’ proposal for the use of profit Annual General Meeting 2011 The Parent Company’s distributable funds totaled EUR 1,525,868,957.58 The Annual General Meeting of Metso Corporation will be held at on December 31, 2010, of which the net profit for the year was 3:00 p.m. on Wednesday, March 30, 2011 at the Helsinki Fair Centre EUR 264,850,234.96. (Messuaukio 1, FI–00520 Helsinki). The Board of Directors proposes based on the balance sheet to be adopted for the financial period ended on December 31, 2010, that a Helsinki, February 3, 2011 dividend of EUR 1.55 per share be distributed. The proposed dividend takes into consideration Metso’s strong financial position and dividend Metso Corporation’s Board of Directors policy. Furthermore, it should be noted that the dividend paid in 2009
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i41003948_METSO_TP_EN.indd 82 22.2.2011 15.58 consolidated financial statements Consolidated Statements of Income
Year ended December 31, EUR million Note 2008 2009 2010 Net sales 33 6,400 5,016 5,552 Cost of goods sold 6, 7 −4,733 −3,808 −4,130 Gross profit 1,667 1,208 1,422
Selling, general and administrative expenses 4, 6, 7 −1,043 −938 −1,028 Other operating income and expenses, net 5 11 24 50 Share in profits and losses of associated companies 14 2 0 1 Operating profit 33 637 294 445
Financial income and expenses, net 8 −89 −72 −75 Profit before tax 548 222 370
Income taxes 9 −158 −71 −112 Profit 390 151 258
Attributable to: Shareholders of the company 389 150 257 Non-controlling interests 1 1 1 Profit 390 151 258
Earnings per share Basic, EUR 12 2.75 1.06 1.71 Diluted, EUR 12 2.75 1.06 1.71
Consolidated Statements of Comprehensive Income
Year ended December 31, EUR million Note 2008 2009 2010 Profit 390 151 258
Cash flow hedges, net of tax 22, 31 −33 14 24 Available-for-sale equity investments, net of tax 15, 22 −19 −1 −4 Currency translation on subsidiary net investments 22 −49 74 121 Net investment hedge gains (+) / losses (−), net of tax 22 −11 0 −13 Defined benefit plan actuarial gains (+) / losses (−), net of tax 28 −22 −2 −11 Other comprehensive income (+) / expense (−) −134 85 117
Total comprehensive income (+) / expense (−) 256 236 375
Attributable to: Shareholders of the company 255 235 374 Non-controlling interests 1 1 1 Total comprehensive income (+) / expense (−) 256 236 375
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Assets As at December 31, EUR million Note 2009 2010 Non-current assets Intangible assets 13 Goodwill 863 880 Other intangible assets 312 287 1,175 1,167 Property, plant and equipment 13 Land and water areas 62 64 Buildings and structures 261 283 Machinery and equipment 449 459 Assets under construction 47 43 819 849 Financial and other assets Investments in associated companies 14 13 14 Available-for-sale equity investments 15, 20 15 9 Loan and other interest bearing receivables 19, 20 9 6 Available-for-sale financial investments 19, 20 130 169 Financial instruments held for trading 19, 20 40 - Derivative financial instruments 20, 31 0 2 Deferred tax asset 9 171 168 Other non-current assets 19, 20 44 42 422 410
Total non-current assets 2,416 2,426
Current assets Inventories 17 1,172 1,305
Receivables Trade and other receivables 19, 20 938 1,242 Cost and earnings of projects under construction in excess of advance billings 16 312 287 Loan and other interest bearing receivables 19, 20 8 6 Available-for-sale financial investments 19, 20 79 178 Financial instruments held for trading 19, 20 - 59 Derivative financial instruments 20, 31 21 55 Income tax receivables 42 29 1,400 1,856
Cash and cash equivalents 21 727 645
Total current assets 3,299 3,806
Total assets 5,715 6,232
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Shareholders’ equity and liabilities As at December 31, EUR million Note 2009 2010 Equity 22 Share capital 241 241 Share premium reserve - - Cumulative translation adjustments −62 46 Fair value and other reserves 710 726 Retained earnings 894 1,036 Equity attributable to shareholders 1,783 2,049
Non-controlling interests 9 22
Total equity 1,792 2,071
Liabilities Non-current liabilities Long-term debt 20, 24 1,334 956 Post-employment benefit obligations 28 190 195 Provisions 25 52 59 Derivative financial instruments 20, 31 5 3 Deferred tax liability 9 56 50 Other long-term liabilities 20 4 6 Total non-current liabilities 1,641 1,269
Current liabilities Current portion of long-term debt 20, 24 173 388 Short-term debt 20, 26 69 29 Trade and other payables 20, 27 1,065 1,377 Provisions 25 235 230 Advances received 363 503 Billings in excess of cost and earnings of projects under construction 16 330 299 Derivative financial instruments 20, 31 21 30 Income tax liabilities 26 36 Total current liabilities 2,282 2,892
Total liabilities 3,923 4,161
Total shareholders' equity and liabilities 5,715 6,232
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i41003948_METSO_TP_EN.indd 85 22.2.2011 15.58 consolidated financial statements Consolidated Statements of Cash Flows
Year ended December 31, EUR million Note 2008 2009 2010 Cash flows from operating activities: Profit 390 151 258 Adjustments to reconcile profit to net cash provided by operating activities Depreciation and amortization 7 138 143 178 Gain (−) / loss (+) on sale of fixed assets 5 −2 −4 −2 Gain (−) / loss (+) on sale of subsidiaries and associated companies 11 −4 1 −2 Gain on sale of available-for-sale equity investments 5 −2 −23 −9 Share of profits and losses of associated companies 14 −3 0 −1 Dividend income and interests, net 8 57 58 51 Income taxes 9 158 71 112 Other non-cash items 45 44 52 Change in net working capital, net of effect from business acquisitions and disposals 18 −437 518 25 Interest paid −64 −68 −73 Interest received 13 16 15 Dividends received 2 1 0 Income taxes paid −154 −138 −98 Net cash provided by operating activities 137 770 506
Cash flows from investing activities: Capital expenditures on fixed assets 13 −255 −116 −134 Proceeds from sale of fixed assets 10 8 7 Business acquisitions, net of cash acquired 10 −44 −1 −21 Proceeds from sale of businesses, net of cash sold 11 12 2 8 Investments in available-for-sale equity investments 0 −1 −1 Proceeds from sale of available-for-sale equity investments 7 24 11 Investments in available-for-sale financial investments - −204 −333 Proceeds from sale of available-for-sale financial investments - 0 195 Investments in financial instruments held for trading - −40 −19 Increase in loan receivables −8 −3 −2 Decrease in loan receivables 1 4 7 Net cash used in investing activities −277 −327 −282
Cash flows from financing activities: Redemption of own shares 22 - −2 −7 Dividends paid −425 −99 −105 Changes in ownership interests in subsidiaries - - 20 Hedging of net investment in foreign subsidiaries 13 −4 0 Net borrowings (+) / payments (−) on short-term debt 163 −200 −46 Proceeds from issuance of long-term debt 486 402 24 Principal payments of long-term debt −25 −141 −218 Principal payments of finance leases −3 −2 −3 Other items 2 −2 −4 Net cash provided by (+) / used in (−) financing activities 211 −48 −339
Net increase (+) / decrease (−) in cash and cash equivalents 71 395 −115 Effect of changes in exchange rates on cash and cash equivalents −24 18 33 Cash and cash equivalents at beginning of year 21 267 314 727 Cash and cash equivalents at end of year 314 727 645
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adjustments reserves shareholders to interests reserve other translation and earnings attributable capital premium value equity EUR million Share Share Cumulative Fair Retained Equity Non-contrrollingTotal Balance at December 31, 2007 241 77 −76 456 910 1,608 7 1,615
Profit - - - - 389 389 1 390
Other comprehensive income (+) / expense (−) Cash flow hedges, net of tax - - - −33 - −33 - −33 Available-for-sale equity investments, net of tax - - - −19 - −19 - −19 Defined benefit plan acturial gains (+) / losses (−), net of tax - - - - −22 −22 - −22 Currency translation on subsidiary net investments - - −49 - - −49 - −49 Net investment hedge gains (+) / losses (−), net of tax - - −11 - - −11 - −11 Total comprehensive income (+) / expense (−) - - −60 −52 367 255 1 256
Dividends - - - - −425 −425 −2 −427 Share-based payments, net of tax - - - 4 - 4 - 4 Decrease and transfer of share premium and legal reserve - −77 - 77 - - - - Other - - - 5 −3 2 3 5 Balance at December 31, 2008 241 - −136 490 849 1,444 9 1,453
Profit - - - - 150 150 1 151
Other comprehensive income (+) / expense (−) Cash flow hedges, net of tax - - - 14 - 14 - 14 Available-for-sale equity investments, net of tax - - - −1 - −1 - −1 Defined benefit plan acturial gains (+) / losses (−), net of tax - - - - −2 −2 - −2 Currency translation on subsidiary net investments - - 74 - - 74 - 74 Net investment hedge gains (+) / losses (−), net of tax - - 0 - - 0 - 0 Total comprehensive income (+) / expense (−) - - 74 13 148 235 1 236
Dividends - - - - −99 −99 −1 −100 Share issue - - - 206 −2 204 - 204 Redemption of own shares - - - −2 - −2 - −2 Share-based payments, net of tax - - - 1 - 1 - 1 Other - - - 2 −2 0 - 0 Balance at December 31, 2009 241 - −62 710 894 1,783 9 1,792
Profit - - - - 257 257 1 258
Other comprehensive income (+) / expense (−) Cash flow hedges, net of tax - - - 24 - 24 - 24 Available-for-sale equity investments, net of tax - - - –4 - –4 - –4 Defined benefit plan acturial gains (+) / losses (−), net of tax - - - - –11 –11 - –11 Currency translation on subsidiary net investments - - 121 - - 121 - 121 Net investment hedge gains (+) / losses (−), net of tax - - −13 - - −13 - −13 Total comprehensive income (+) / expense (−) - - 108 20 246 374 1 375
Dividends - - - - −105 −105 −1 −106 Donations to universities - - - - −2 −2 - −2 Redemption of own shares - - - −7 - −7 - −7 Share-based payments, net of tax - - - 0 −1 −1 - −1 Other - - - 3 −4 −1 0 −1 Changes in non-controlling interests - - - - 8 8 13 21 Balance at December 31, 2010 241 - 46 726 1,036 2,049 22 2,071
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i41003948_METSO_TP_EN.indd 87 22.2.2011 15.58 notes to the consolidated financial statements Notes to the Consolidated Financial Statements
1 Accounting principles
Description of businesses Use of estimates Metso Corporation (the “Parent Company”) and its subsidiaries The preparation of financial statements, in conformity with IFRS, re- (together with the Parent Company, “Metso” or the “Group”) form a quires management to make estimates and assumptions that affect the global supplier of sustainable technology and services, which designs, reported amounts of assets and liabilities and disclosure of contingent develops and produces systems, automation solutions, machinery and assets and liabilities at the dates of the financial statements and the re- equipment for process industries. The main customer industries operate ported amounts of revenues and expenses during the reporting period. in mining, construction, power generation, automation, recycling as Actual results could differ from those estimates. well as in pulp and paper industries. Metso Corporation is a publicly listed company and its shares are Accounting convention listed on the NASDAQ OMX Helsinki Ltd under the trading symbol The financial statements are prepared under the historical cost conven- MEO1V. Metso Corporation is domiciled in Finland and the address of tion, except for assets and liabilities classified as fair valued through the Group Head Office is Fabianinkatu 9A, 00130 Helsinki, Finland. profit and loss, available-for-sale investments, financial instruments These consolidated financial statements were authorized for issue by held for trading and derivative instruments, which are recognized at the Board of Directors on February 3, 2011 after which, in accordance fair value. with Finnish Company Law, the financial statements are either ap- proved, amended or rejected in the annual shareholders’ meeting. Principles of consolidation Subsidiaries Basis of preparation and changes in accounting policies The consolidated financial statements include the financial statements The consolidated financial statements, prepared in accordance with of the Parent Company and each of those companies in which it owns, International Financial Reporting Standards (“IFRS”) as adopted by directly or indirectly through subsidiaries, over 50 percent of the voting the EU include the financial statements of Metso Corporation and its rights or in which it is in a position to govern the financial and operat- subsidiaries. There are no differences between IFRS standards and ing policies of the entity. The companies acquired during the financial interpretations as adopted by the EU, as applied in Metso, and IFRS as period have been consolidated from the date Metso acquired control. written by the IASB. Subsidiaries sold have been included up to their date of disposal. From January 1, 2010 onwards Metso has applied prospectively IFRS 3 All intercompany transactions, balances and gains or losses on (Revised), ‘Business combinations’, which requires expensing of transac- transactions between subsidiaries are eliminated as part of the tion costs. In addition, all payments to purchase a business are to be consolidation process. Non-controlling interests are presented in the recorded at fair value on the acquisition date, with some contingent consolidated balance sheets within equity, separate from the equity payments subsequently remeasured at fair value through income state- attributable to shareholders. Non-controlling interests are separately ment. Goodwill may be calculated based on the parent’s share of net disclosed in the consolidated statements of income. assets or it may include goodwill related to non-controlling interests. Acquisitions of businesses are accounted for using the acquisition The impact of the revised standard has been expensing of direct acqui- method. The purchase consideration of an acquisition is measured at sition costs amounting to less than EUR 2 million, which under previous fair value over the assets given up, shares issued or liabilities incurred standard would have been capitalized in the acquisition cost. or assumed at the date of acquisition. The purchase considerations for From January 1, 2010 onwards Metso has applied IAS 27 (Revised), acquisitions realized prior to 2010 include also related direct acquisition ‘Consolidated and separate financial statements’. The revised standard costs. For each acquisition the non-controlling interest in the acquiree, requires the effects of all transactions with non-controlling interests to if any, can be recognized either at fair value or at the non-controlling be recorded in equity if there is no change in control. They no longer interest’s proportionate share of the acquiree’s net assets. The excess result in goodwill or gains and losses. The standard also specifies the acquisition price over the fair value of net assets acquired is recognized accounting when control is lost. Any remaining interest in the entity is as goodwill (see also intangible assets). If the purchase consideration is remeasured to fair value and a gain or loss is expensed. Subsequent to less than the fair value of the Group’s share of the net assets acquired, revised standard, Metso has recognized a gain of EUR 8 million directly the difference is recognized directly through profit and loss. under shareholders’ equity in 2010. Transactions with non-controlling interests are regarded as transac- From January 1, 2010 onwards Metso has applied the amendment to tions with equity owners. In case of purchases from non-controlling in- IAS 38 ‘Intangible assets’, which clarifies the requirements under IFRS 3 terests, the difference between any consideration paid and the relevant ‘Business combinations’ regarding the accounting for intangible assets share of the carrying value of net assets acquired in the subsidiary is acquired in a business combination and allows for the combination of recorded in shareholders’ equity. Gains or losses on disposals to non- intangible assets with equal economic useful life to one asset group. controlling interests are also recorded directly in shareholders’ equity. The adoption has not impacted the business combinations done in 2010.
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Associated companies and joint ventures with foreign currency loans and with financial derivatives, the transla- The equity method of accounting is used for investments in associ- tion difference is adjusted by the currency effect of hedging instruments ated companies in which the investment provides Metso the ability to which has been recorded, net of taxes, through the OCI in equity. When exercise significant influence over the operating and financial policies a foreign entity is disposed of, the respective accumulated translation of the investee company. Such influence is presumed to exist for invest- difference, including the effect from qualifying hedging instruments, is ments in companies in which Metso’s direct or indirect ownership is reversed through the OCI and recognized in the consolidated statements between 20 and 50 percent of the voting rights. Investments in as- of income as part of the gain or loss on the sale. sociated companies are initially recognized at cost after which Metso’s share of their post-acquisition retained profits and losses is included Derivative financial instruments as part of investments in associated companies in the consolidated Derivatives are initially recognized in the balance sheet at fair value balance sheets. and subsequently measured at their fair value at each balance sheet Under the equity method, the share of profits and losses of associ- date. Derivatives are designated at inception either as hedges of firm ated companies and joint ventures is presented separately in the commitments or forecasted transactions (cash flow hedge), or as hedg- consolidated statements of income. es of net investment in a foreign operation (net investment hedge), or Investments in joint ventures in which Metso has the power to jointly as derivatives at fair value through profit and loss that do not meet the govern the financial and operating activities of the investee company hedge accounting criteria. are accounted for using the equity method. In case of hedge accounting, Metso documents at inception the relationship between the hedging instruments and hedged items in Segment reporting accordance with its risk management strategy and objectives. Metso Metso’s operations are divided into three operating segments: Mining also tests the effectiveness of the hedge relationships at hedge incep- and Construction Technology, Energy and Environmental Technol- tion and quarterly both prospectively and retrospectively. ogy, and Paper and Fiber Technology, the performances of which are Derivatives are classified as non-current assets or liabilities when the regularly reviewed by the chief operating decision maker, in Metso the remaining maturity exceeds 12 months and as current assets or liabili- Board of Directors, to decide on allocation of resources and to assess ties when the remaining maturity is less than 12 months. the performance. The performance of each segment is reported in the notes using Cash flow hedge same measurements and subtotals as reported to the chief operating Metso applies cash flow hedge accounting to certain interest rate decision maker. One key indicator of performance is EBITA (Earnings swaps, foreign currency forward contracts and to electricity forwards. Before Interest, Taxes and Amortization). In 2010 the performance is Metso designates only the currency component of the foreign cur- further being analyzed by excluding from EBITA items qualifying as rency forward contracts as the hedging instrument to hedge foreign non-recurring, such as capacity adjustment costs, outcome of material currency denominated firm commitments. The interest component intellectual property rights’ disputes, gains and losses on disposal is recognized under other operating income and expenses, net. The of listed shares and gains and losses on business disposals, business gain or loss relating to the effective portion of the currency forward prospection and acquisition costs and other infrequent events, as these contracts is recognised in the income statement concurrently with items reduce the comparability of the segments’ performance from the underlying in the same line item. The effective portion of foreign one period to another. For comparative purposes the performance of currency forwards hedging sales and purchases is recognized in the net previous years is presented in the reporting segment note using the sales and the cost of goods sold, respectively. The gain or loss relating new measurement. to the effective portion of interest rate swaps hedging variable rate The accounting policies applicable to the segment reporting are the borrowings is recognised in the income statement within financial same as those used for establishing the consolidated financial state- items. Both at hedge inception and at each balance sheet date an ments. assessment is performed to ensure the continued effectiveness of the designated component of the derivatives in offsetting changes in the Foreign currency translation fair values of the cash flows of hedged items. The financial statements are presented in euros, which is the Parent Metso assesses regularly the effectiveness of the fair value changes Company’s functional currency and Metso’s presentation currency. of the electricity forwards in offsetting the changes in the fair value Transactions in foreign currencies are recorded at the rates of exchange changes of the underlying forecasted electricity purchases in different prevailing at the date of the transaction. At the end of the accounting countries. The gain or loss relating to the effective portion of the elec- period, unsettled foreign currency transaction balances are valued at the tricity forward contracts is recognised in the cost of goods sold. rates of exchange prevailing at the balance sheet date. Trade flow related The effective portion of the derivatives is recognized through OCI foreign currency exchange gains and losses are recorded in other operat- in the hedge reserve under equity and reversed through OCI to be ing income and expenses, unless the foreign currency denominated recorded through profit and loss concurrently with the underlying transactions have been subject to hedge accounting, in which case the transaction being hedged. The gain or loss relating to the ineffective related exchange gains and losses are recorded in the same line item as portion of the derivatives is reported under other operating income the hedged transaction. Foreign exchange gains and losses associated and expenses, net or under financial items when contracted to hedge with financing are entered as a net amount under financial income and variable rate borrowings. Should a hedged transaction no longer be expenses. expected to occur, any cumulative gain or loss previously recognized The statements of income of subsidiaries with a functional currency under equity is reversed through OCI to profit and loss. different from the presentation currency are translated into euro at the average exchange rates for the financial year and the balance sheets are Net investment hedge translated at the exchange rate of the balance sheet date. This exchange Metso hedges its net foreign investments in certain currencies to rate difference is recorded through Other Comprehensive Income/Ex- reduce the effect of exchange rate fluctuations. The hedging instru- pense (OCI) in the cumulative translation adjustment line item in equity. ments are mainly foreign currency loans and foreign currency forward The translation differences arising from subsidiary net investments and contracts. Both realized and unrealized exchange gains and losses long-term subsidiary loans without agreed settlement dates are recog- measured on these instruments are recorded, net of taxes, through OCI nized through the OCI to the cumulative translation adjustments under in a separate component of equity against the translation differences equity. When Metso hedges the net investment of its foreign subsidiaries arising from consolidation to the extent these hedges are effective. The
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interest portion of derivatives qualifying as hedges of net investment is insured plans are charged to profit and loss concurrently with the pay- recognized under financial income and expenses, net. ment obligations. In the case of defined benefit plans, the liability recognized from the Derivatives at fair value through profit and loss plan is the present value of the defined benefit obligation as of the bal- Certain derivative instruments do not qualify for hedge accounting. ance sheet date, adjusted by the fair value of the plan assets and by the These instruments, which have been contracted to mitigate risks arising unamortized portion of past service cost. Independent actuaries calcu- from operating and financing activities, comprise foreign exchange late the defined benefit obligation by applying the projected unit credit forward contracts, currency and interest rate options, interest rate method under which the estimated future cash flows are discounted to swaps and swap agreements for nickel. Changes in the fair value of their present value using the interest rates approximating the terms of interest rate swaps are recognized in interest expenses. Changes in the the pension engagement. The cost of providing retirement and other fair value of foreign exchange forward contracts are mainly recognized post retirement benefits to the personnel is charged to profit and loss in other operating income and expenses. However, when the foreign concurrently with the service rendered by the personnel. Actuarial gains exchange forwards have been contracted to mitigate the exchange and losses arising from experience adjustments, changes in actuarial rate risks arising from foreign currency denominated cash and from assumptions and amendments to plans are recognized through OCI in financial instruments used for cash management, the changes in shareholders’ equity. fair value of the derivatives are recognized in financial income and expenses, net. Changes in the fair value of other derivative instruments Revenue recognition such as commodity instruments are recognized in other operating Revenues from goods and services sold are recognized, net of sales taxes income and expenses, net. and discounts, when substantially all the risks and rewards of ownership are transferred to the buyer or when legal title of the goods and respon- Fair value estimation of derivative instruments sibility for shipment has been transferred to the buyer. The transfer of The fair value of the foreign currency forward contracts is determined risk takes place either when the goods are shipped or made available using forward exchange market rates at the balance sheet date. The to the buyer for shipment depending on the terms of the contract. The fair value of the interest rate swaps is calculated as the present value of credit worthiness of the buyer is verified before engaging into a sale. the estimated future cash flows based on observable yield curves. The However, if a risk of non-payment arises after revenue recognition, a fair value of the commodity forwards and swaps are based on quoted provision for non-collectability is established. market prices at the balance sheet date. The fair value of options is determined using Black-Scholes valuation model. Percentage-of-completion method Sales and anticipated profits under engineering and construction con- Employee benefits tracts are recorded on a percentage-of-completion basis. The stage of Share-based payments completion is determined either by units of delivery, which are based on Metso has share-based incentive plans for its key personnel. predetermined milestones and on the realized value added (contract val- The equity-settled share awards are valued based on the market ue of the work performed to date) or by the cost-to-cost method of ac- price of the Metso share as of the grant date, and recognized as an counting. Estimated contract profits are recorded in earnings in propor- employee benefit expense over the vesting period with corresponding tion to recorded sales. In the cost-to-cost method, sales and profits are entry in other reserves of the equity. The liability resulting from the recorded after considering the ratio of accumulated costs to estimated cash-settled transactions is measured based on the market price of the total costs to complete each contract. Subcontractor materials, labor and Metso share as of the balance sheet date and accrued as an employee equipment, are included in sales and costs of goods sold when manage- benefit expense with corresponding entry in the current liabilities until ment believes that Metso is responsible for the ultimate acceptability of the settlement date. the project. Changes to total estimated contract costs and losses, if any, Market conditions, such as the total shareholder return upon which are recognized in the period in which they are determined. vesting is conditioned, is taken into account when estimating the fair value of the equity instruments granted. The expense relating to the Service revenue market condition is recognized irrespective of whether that market Revenues from short-term service contracts are recognized once the condition is satisfied. service has been rendered. Revenues from long-term service contracts Non-market vesting conditions, such as operating profit and earn- are recognized using the output method. ings per share targets, are included in assumptions about the amount of share-based payments that are expected to vest. At each balance Trade-ins sheet date, Metso revises its estimates on the amount of share-based Sales against which trade-ins are accepted are recorded at contract price. payments that are expected to vest. The impact of the revision to previ- Any reduction between the agreed trade-in price and its recorded value ous estimate is recognized through profit and loss with corresponding in the inventory is recognized in cost of goods sold concurrently with adjustment to equity and current liabilities, as appropriate. the sale.
Pensions and coverage of pension liabilities Government grants Metso has several different pension schemes in accordance with local Government grants relating to acquisition of property, plant and equip- regulations and practices in countries where it operates. In certain ment are deducted from the acquisition cost of the asset and they countries, the pension schemes are defined benefit plans with retire- reduce the depreciation charge of the related asset. Other government ment, disability, death, and other post retirement benefits, such as grants are deferred and recognized in profit and loss concurrently with health services, and termination income benefits. The retirement ben- the costs they compensate. efits are usually based on the number of service years and the salary levels of the final service years. The schemes are generally funded Emission rights and trading through payments to insurance companies or to trustee-administered Metso has received emission rights under the European Emission Trading funds as determined by periodic actuarial calculations. Scheme. These rights, for the recognition of which there are no authori- In addition, certain companies within Metso have multi-employer tative rules, are recognized as government grants at acquisition price pension arrangements and defined contribution pension schemes. The and as they have been granted free of charge their acquisition value is contributions to defined contribution plans and to multi-employer and nil. They are being consumed concurrently with CO2 emissions over the
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compliance period. Any excess of rights is disposed of and the gain is Amortization of intangible assets Amortization of intangible assets recognized under other operating income. Should the emissions made with a definite useful life is calculated on a straight-line basis over the exceed the initially allocated rights, additional rights are acquired at expected economic lives of the assets as follows: prevailing market price and recognized as cost in the costs of goods sold. Patents and licenses 5 – 10 years Computer software 3 – 5 years Technology 3 – 15 years Other operating income and expenses, net Customer relationships 3 – 12 years Other operating income and expenses, net, comprise income and Other intangibles (incl. order backlog) < 1 – 15 years expenses, which do not directly relate to the operating activity of businesses within Metso or which arise from unrealized and real- Expected useful lives are reviewed at each balance sheet date and if ized changes in fair value of foreign currency denominated financial they differ significantly from previous estimates, the remaining amorti- instruments associated with the operating activity, including forward zation periods are adjusted accordingly. exchange contracts. Such items include costs related to significant The carrying value of intangible assets subject to amortization is re- restructuring programs, gains and losses on disposal of assets, except viewed for impairment whenever events and changes in circumstances for those qualifying as discontinued operations, and foreign exchange indicate that the carrying amount of an asset may not be recoverable. gains and losses, excluding those qualifying for hedge accounting and A previously recognized impairment loss may be reversed if there is a those, which are reported under financial income and expenses, net. significant improvement to the circumstances having initially caused Additionally, non-recoverable foreign taxes, which are not based on the impairment, however not to a higher value than the carrying taxable profits, are reported in other operating income and expenses, amount, which would have been recorded had there been no impair- net. These include for example foreign taxes and/or suchlike payments ment in prior years. not based on Double Tax Treaties in force. Impairment of intangible assets with indefinite useful lives The carrying Income taxes value of goodwill for each segment and of other intangible assets with Income taxes presented in the consolidated statements of income indefinite useful lives are reviewed annually or more frequently for im- consist of current and deferred taxes. Current taxes include estimated pairment, if the facts and circumstances, such as declines in sales, op- taxes corresponding to the Group companies’ results for the financial erating profit or cash flows or material adverse changes in the business year, and adjustments to taxes for previous years. environment, suggest that its carrying value may not be recoverable. A deferred tax liability or asset has been determined for all tempo- The testing of goodwill is performed at the cash generating unit level, rary differences between the tax bases of assets and liabilities and their whereas the testing of other intangible assets with an indefinite useful amounts in financial reporting, using the enacted tax rates effective for life is either performed as part of a cash generating unit or separately the future years. The deferred tax liabilities are recognized in the bal- if the asset generates independent cash flows. The annual testing may ance sheet in full, and the deferred tax assets are only recognized when be performed using previous year’s recoverable amounts of the cash it is probable that there will be sufficient taxable profit against which generating units if there has not been any significant changes to the the asset can be utilized. No deferred income tax is accounted for if assets and liabilities of the cash generating unit, if in the previous test- it arises from initial recognition of an asset or liability in a transaction ing the recoverable value clearly exceeded the carrying values tested, other than a business combination. or if the likelihood that the current recoverable value would be less No deferred tax liability has been recognized for undistributed earn- than the current carrying value of the cash generating unit is remote. ings of domestic subsidiaries (i.e. Finnish) since such earnings can be Metso uses a discounted cash flow analysis to assess the fair value of transferred to the Parent Company without tax consequences. Metso goodwill or of another intangible asset subject to testing. A previously does not provide deferred income taxes on undistributed earnings of recognized impairment loss on goodwill is not reversed even if there is foreign subsidiaries, except in situations where Metso has elected to a significant improvement in circumstances having initially caused the distribute earnings, which become subject to additional non-recover- impairment. able taxes triggered by a distribution. Research and development Research and development costs are Earnings per share mainly expensed as incurred. Research and development costs com- Basic earnings per share are calculated by dividing the profit attribut- prise salaries, administration costs, depreciation and amortization of able to equity shareholders of the Parent Company by the weighted tangible and intangible fixed assets. Development costs meeting cer- average number of ordinary shares in issue during the year, excluding tain capitalization criteria under IAS 38 are capitalized and amortized own shares. during the expected economic life of the underlying technology. Diluted earnings per share are calculated by including the potentially diluting ordinary shares to the weighted average number of ordinary Property, plant and equipment shares in issue excluding own shares. The potentially diluting ordinary Property, plant and equipment are stated at historical cost, less accu- shares are related to the share ownership plans targeted to Metso’s key mulated depreciation and impairment loss, if any. Land and water areas personnel. are not depreciated. Depreciation is calculated on a straight-line basis over the expected Fixed assets useful lives of the assets as follows: Fixed assets comprise intangible assets and property, plant and equip- ment. Buildings and structures 15 – 40 years Machinery and equipment 3 – 20 years Intangible assets Intangible assets, which comprise mainly goodwill, trademarks, patents Expected useful lives are reviewed at each balance sheet date and if and licenses, are stated at historical cost less accumulated amortiza- they differ significantly from previous estimates, the remaining depre- tion and impairment loss, if any. Goodwill and intangible assets with ciation periods are adjusted accordingly. indefinite useful lives, such as brands, are not amortized, but tested Subsequent improvement costs related to an asset are included in annually for impairment. the carrying value of such asset or recognized as a separate asset, as
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appropriate, only when the future economic benefits associated with the change in fair value is recognized through profit and loss. Gains and the costs are probable and the related costs can be separated from losses at disposal and impairment, if any are recorded in profit and loss. normal maintenance costs. Derivatives that are not designated as hedges do not meet the hedge Metso reviews property, plant and equipment to be held and used accounting criteria, and are fair valued quarterly through profit and loss. by the company for impairment whenever events and changes in Gains and losses at disposal are recorded in profit and loss. circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment of property, plant and equipment and Available-for-sale equity investments capital gains and losses on their disposal are included in other operat- Available-for-sale equity investments include mainly shares in publicly ing income and expenses, net. Previously recognized impairment on listed companies. Available-for-sale equity investments are carried at fair property, plant and equipment is reversed only if there has been a value, based on quoted closing prices as of the respective balance sheet significant change in the estimates used to determine the recoverable date. Unrealized gains and losses arising from changes in fair value are amount, however not to exceed the carrying value, which would have recognized through OCI in the fair value reserve of equity. Gains and been recorded had there been no impairment in prior years. losses at disposal and impairment, if any, are recorded in the profit and loss and the accumulated change in fair value previously recorded in the Capitalization of interest expenses The interest expenses of self- fair value reserve of equity is reversed through OCI. Unlisted shares, for constructed investments are capitalized in Metso’s financial statements. which fair values cannot be measured reliably, are recognized at cost less The capitalized interest expense is amortized over the estimated useful impairment, if any. life of the underlying asset. Available-for-sale financial investments Leases Leases for property, plant and equipment, where Metso has Non-current available-for-sale financial investments Available-for-sale substantially all the risks and rewards of ownership, are classified as financial investments, which are reported under non-current assets and finance leases. Finance leases are capitalized at the inception of the which have been contracted as part of the cash management of Metso, lease at the lower of the fair value of the leased property or the present comprise investments in financial instruments, e.g. bonds, commercial value of the minimum lease payments. Each lease payment is allocated papers and time deposits with maturities exceeding one year or with an between the liability and finance charges. The corresponding rental undefined maturity and which Metso plans to hold for more than one obligations, net of finance charges, are included in long-term debt, year. The instruments are fair valued quarterly and the change in fair and the interest element is charged to profit and loss over the lease value is recognized through OCI in the fair value reserve of equity. Gains period. Property, plant and equipment acquired under finance leases and losses at disposal and impairment, if any, are recorded in profit and are depreciated over the useful life of the asset or over the lease period, loss and the accumulated change in fair value previously recorded in the if shorter. fair value reserve of equity is reversed through OCI. Leases of property, plant and equipment, where the lessor retains a significant portion of the risks and rewards, are classified as operating Current available-for-sale financial investments Available-for-sale leases. Payments under operating leases are expensed as incurred. financial investments, which are reported under current assets, comprise highly liquid investments, which have been contracted as part of the Financial assets and liabilities cash management of Metso and which do not qualify as cash and cash Metso classifies its financial investments into the following categories: equivalents. They are fair valued quarterly and the change in fair value assets and liabilities at fair value through profit and loss, loans and is recognized through OCI in the fair value reserve of equity. Gains and receivables and available-for-sale financial assets. The classification is losses at disposal and impairment, if any, are recorded in profit and loss determined at the time of the acquisition depending on the intended and the accumulated change in fair value previously recorded in the fair purpose. Assets at fair value through profit and loss comprise deriva- value reserve of equity is reversed through OCI. tives and financial instruments designated as at fair value through profit and loss upon initial recognition. Loans and receivables Available-for-sale financial assets are further classified into available- Loan and other interest bearing receivables comprise interest bearing for-sale equity investments and available-for-sale financial investments. trade and loan receivables. Loans and receivables include loans and other interest bearing receiv- Loans and receivables are initially recognized at fair value including ables and other receivables, which are not interest bearing. transaction costs. Subsequently they are recognized at amortized cost Purchases and sales of assets and liabilities at fair value through using the effective interest method. They are subject to regular and profit and loss, and loans and receivables are recognized or derecog- systematic review as to collectability. If a loan receivable is estimated to nized on the trade date, i.e. the date Metso commits to purchase or sell be partly or totally unrecoverable, an impairment loss is recognized for the asset. Purchases and sales of available-for-sale financial assets are the shortfall between the carrying value and the present value of the recognized on the transaction date at fair value including transaction expected cash flows. Interest income on loan and other interest bearing costs. receivables is included in financial income and expenses, net. Financial assets are presented as non-current when their maturity exceeds one year. Inventories At each balance sheet date, Metso assesses whether there is objec- Inventories are stated at the lower of historical cost calculated on average tive evidence of an available-for-sale financial asset or of a group cost basis or net realizable value. Costs include purchase costs as well as of assets under this category being impaired. In case of prolonged transportation and processing costs. The costs of finished goods include significant decline in the fair value of such an asset compared to its direct materials, wages and salaries plus social costs, subcontracting acquisition value, the accumulated net loss is reversed from equity and and other direct costs. In addition, production costs include an allocable recognized in the income statement. portion of production and project administration overheads. Net realiz- able value is the estimated amount that can be realized from the sale of Assets and liabilities at fair value through profit and loss the asset in the normal course of business after allowing for the costs of Financial instruments held for trading, which are fair valued through realization. profit and loss, comprise investments in financial instruments, e.g. Inventories are shown net of a reserve for obsolete and slow-moving bonds, commercial papers and time deposits with various maturities inventories. A reserve is established and a corresponding charge is taken exceeding three months. The instruments are fair valued quarterly and to profit and loss in the period in which the loss occurs based upon an
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assessment of technological obsolescence and related factors. has an unconditional right to defer settlement of the liability for at Trade-in equipment received is recorded as inventory at the lower of least 12 months after the balance sheet date. cost or net realizable value. Capitalization of transaction costs Trade receivables related to issuance of debt instruments Trade receivables are recognized at original invoice amount to custom- Transaction costs arising from issuance of debt instruments are includ- ers and reported in the balance sheet, net of provision for doubtful re- ed in the carrying value of the debt and amortized using the effective ceivables. The provision, which is expensed under selling, general and interest method over the period of the respective liability. administrative expenses, is recorded on the basis of periodic reviews of potential non-recovery of receivables by taking into consideration Capitalization of transaction costs individual customer credit risk, economic trends in customer industries related to modification of debt instruments and changes in payment terms. Bad debts are written off when official Transaction costs arising from modification of debt instruments are in- announcement of receivership, liquidation or bankruptcy is received cluded in the carrying value of the debt and amortized using the effec- confirming that the receivable will not be honored. tive interest method over the remaining period of the modified liability If extended payment terms, exceeding one year, are offered to provided that the new conditions obtained through the modification customers, the invoiced amount is discounted to its present value and do not substantially differ from those of the original debt. The assess- interest income is recognized over the credit term. ment of whether the conditions are substantially different is based on a comparison of the discounted present value of the cash flows under Cash and cash equivalents the new terms and the present value of the remaining cash flows of Cash and cash equivalents consist of cash in banks and other liquid the original financial liability. investments with initial maturity of three months or less. Provisions Assets classified as held-for-sale Provisions, for which settlement is expected to occur more than one Non-current assets and discontinued operations are classified as held- year after the initial recognition, are discounted to their present value for-sale and stated at the lower of carrying value and the fair value less and adjusted in subsequent closings for the time effect. cost to sell, if their carrying value is recovered principally through a sale transaction rather than through a continuing use. Restructuring and capacity adjustment costs A discontinued operation results from the management’s decision A provision for restructuring and capacity adjustment costs is recog- and commitment to dispose of a separate business for which the relat- nized only after management has developed and approved a formal ed assets, liabilities and operating results can be distinguished both op- plan to which it is committed. Employee termination benefits are rec- erationally and for financial reporting purposes. When specific criteria ognized after the representatives of employees or individual employees for the held-for-sale classification has been met, the non-current assets have been informed of the intended measures in detail and the related are recorded at the lower of carrying value or fair value less cost to sell, compensation packages can be reliably measured. The costs included and non-current assets subject to depreciation or amortization are no in a provision for capacity adjustment are those costs that are either in- longer amortized. The assets and liabilities of a disposal group classi- cremental or incurred as a direct result of the plan or are the result of a fied as held-for-sale are presented in the balance sheet separate from continuing contractual obligation with no continuing economic benefit assets and liabilities related to continuing operations as of the date the to Metso or a penalty incurred to cancel the contractual obligation. Re- operation qualified as discontinued. The results of discontinued opera- structuring and capacity adjustment expenses are recognized in either tions, net of taxes and the gain or loss on their disposal are presented cost of goods sold or selling, general and administrative expenses de- for all periods separate from continuing operations in the consolidated pending on the nature of the restructuring expenses. Should there be statements of income. Balance sheet data from periods preceding the a Metso or segment wide restructuring program, the related costs are qualifying disposal decision is not reclassified. recognized in other operating income and expenses, net. Restructuring costs can also include other costs incurred as a result of the plan, which Issue of new shares and own shares are recorded under other operating income and expenses, net, such as Transaction costs directly attributable to the issue of new shares or asset write-downs. options are shown net of their tax effect in equity as a deduction from the proceeds. Environmental remediation costs Own shares valued at historical acquisition price are deducted from Metso accrues for losses associated with environmental remediation equity. Should such shares be subsequently sold or reissued, the con- obligations when such losses are probable and can be estimated reli- sideration received, net of any directly attributable transaction costs ably. Accruals for estimated losses from environmental remediation and related income tax, is recorded in the equity. obligations generally are recognized no later than completion of the remedial feasibility study. Such accruals are adjusted as further infor- Dividends mation develops or circumstances change. Recoveries of environmen- Dividends proposed by the Board of Directors are not recognized in the tal remediation costs from other parties are recorded as assets when financial statements until they have been approved by the sharehold- their receipt is deemed virtually certain. ers in the Annual General Meeting. Warranty costs Long-term debt An accrual is made for expected warranty costs. The adequacy of this Long-term debt is initially recognized at fair value, net of transaction accrual is reviewed periodically based on an analysis of historical expe- costs incurred. Debt is classified as current liability unless the Group rience and anticipated probable warranty liabilities.
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2 Financial risk management
As a global company, Metso is exposed to a variety of business and instruments held for trading EUR 59 million (EUR 40 million) and com- financial risks. Financial risks are managed centrally by the Group mitted undrawn credit facilities to EUR 500 million (EUR 500 million). Treasury under annually reviewed written policies approved by the The five year revolving credit facility was renewed in 2010. Board of Directors. Treasury operations are monitored by the Treasury Liquidity risk management as described here excludes trade receiv- Management Team chaired by the CFO. Group Treasury functions as ables (both interest and non-interest bearing) and similar financial counterparty to the operating units, manages centrally external fund- instruments, as they are not considered active risk management tools ing and is responsible for the management of financial assets and ap- within the responsibility of Group Treasury. Similarly, non-interest propriate hedging measures. Group Treasury identifies, evaluates and bearing liabilities such as trade and other payables are not included in hedges financial risks in close co-operation with the operating units. liquidity management. The objective of financial risk management is to minimize potential Metso’s refinancing risk is managed by balancing the proportion adverse effects on Metso’s financial performance. of short-term and long-term debt as well as the average remaining maturity of long-term debt. The tables below analyze the repayments Sensitivity analysis and interests on Metso’s liabilities by the remaining maturities from the Sensitivity analysis figures presented in connection with different finan- balance sheet date to the contractual maturity date. cial risks are based on the risk exposures at the balance sheet date. The Detailed information of balance sheet items is presented in other sensitivity is calculated by assuming a change in one of the risk factors notes to consolidated financial statements. of a financial instrument, such as interest or currency. It is not likely Capital structure management in Metso comprises both equity and that the future volatility of a risk factor will develop in accordance with interest bearing debt. As of December 31, 2010 the equity attribut- the test assumptions and that only one factor would be impacted. able to shareholders was EUR 2,049 million (EUR 1,783 million) and the When calculating the sensitivity, Metso has chosen to use market amount of interest bearing debt was EUR 1,373 million (EUR 1,576 mil- conventions in assuming a 100 basis point variation in interest rates, lion). The objectives are to safeguard the ongoing business operations 10 percent change in foreign exchange rates and in commodity prices and to optimize the cost of capital. Metso has a target to maintain a because this provides better comparability from one period to another solid investment grade credit rating. and information on the volatility to users of financial statements. Metso is aware that such assumptions may not be realistic when compared The credit ratings as at December 31, 2010: to past volatility and they are not intended to reflect the future. Metso Moody’s Baa2 has chosen not to use past volatility as this could mislead the users of Standard & Poor’s BBB / A–2 financial statements to assume the analysis reflect management’s view on the future volatility of the financial instruments. There are no prepayment covenants in Metso’s financial contracts which would be triggered by changes in credit rating. Financial Liquidity and refinancing risk covenants included in some loan agreements refer to Metso’s capital and capital structure management structure. Metso is in compliance with all covenants and other terms of Liquidity or refinancing risk arises when a company is not able to its debt instruments. arrange funding at terms and conditions corresponding to its credit Capital structure is assessed regularly by the Board of Directors and worthiness. Sufficient cash, short-term investments and committed managed operationally by the Group Treasury. and uncommitted credit facilities are maintained to protect short- Capital structure ratios are included in financial indicators for years term liquidity. Diversification of funding among different markets 2006–2010 on page 137 in these financial statements. The formulas for and adequate number of financial institutions is used to safeguard calculating the financial indicators are presented on page 138. the availability of liquidity at all times. Group Treasury monitors bank account structures, cash balances and forecasts of the operating units Interest rate risk and manages the utilization of the consolidated cash resources. Interest rate risk arises when changes in market interest rates and inter- At the end of 2010 (end of 2009 respectively) cash and cash equiva- est margins influence finance costs, returns on financial investments lents amounted to EUR 645 million (EUR 727 million), available-for-sale and valuation of interest bearing balance sheet items. Interest rate risks financial investments to EUR 347 million (EUR 209 million), financial are managed through balancing the ratio between fixed and floating
Maturities as of December 31, 2009 Maturities as of December 31, 2010 EUR million <1 year 1 – 5 years >5 years EUR million <1 year 1 – 5 years >5 years Long-term debt Long-term debt Repayments 173 1,103 231 Repayments 388 761 195 Interests 65 158 27 Interests 66 116 9 Short-term debt Short-term debt Repayments 69 - - Repayments 29 - - Interests 1 - - Interests 1 - - Trade payables 605 - - Trade payables 815 - - Other liabilities 460 - - Other liabilities 568 - - Interest rate derivatives 4 5 2 Interest rate derivatives 2 5 2 Total 1,377 1,266 260 Total 1,869 881 205 Financial guarantee contracts 3 Financial guarantee contracts 1
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interest rates and duration of debt and investment portfolios. Ad- Total foreign exchange transaction exposure on December 31 was as ditionally, Metso may use derivative instruments such as forward rate follows: agreements, swaps, options and futures contracts to mitigate the risks arising from interest bearing assets and liabilities. The interest rate risk EUR million 2009 2010 is managed and controlled by the Group Treasury and measured using Operational items 418 627 sensitivity analysis and duration of long term debt. The Macaulay Dura- Financial items −172 −136 tion of long term debt was 1.6 years on December 31, 2010 (2.0 years). Hedges −243 −447 At the end of 2010 the balance sheet items exposed to interest rate Total exposure 3 45 risk were interest bearing assets of EUR 1,063 million (EUR 993 million) and interest bearing debt of EUR 1,373 million (EUR 1,576 million). Of the This aggregate group level currency exposure is the basis for the sensi- total of the interest bearing debt 74 percent (77%) was denominated in tivity analysis of foreign exchange risk. This exposure, net of respective EUR. hedges, is composed of all assets and liabilities denominated in foreign The basis for the interest rate risk sensitivity analysis is an aggregate currencies, projected cash flows for unrecognized firm commitments, group level interest rate exposure, composed of interest bearing assets, both short- and long-term sales and purchase contracts and antici- interest bearing debt and financial derivatives, such as interest rate pated operational cash flows to the extent their realization has been swaps and options, which are used to hedge the underlying expo- deemed highly probable and therefore hedged. This analysis excludes sures. For all interest bearing debt and assets to be fixed during next net foreign currency investments in subsidiaries together with instru- 12 months a one percentage point (100 basis points) move upwards ments hedging these investments. Assuming euro to appreciate or or downwards in interest rates with all other variables held constant depreciate ten percent against all other currencies, the impact on cash would have an effect on Metso’s net interest expenses, net of taxes, of flows, net of taxes, derived from the year-end net exposure as defined EUR −/+ 3.0 million (EUR −/+ 2.9 million). above, would be EUR −/+ 1.2 million (EUR −/+ 0.3 million). A one percentage point (100 basis points) move upwards or down- Transaction exposure is spread in about 30 currencies and as of De- wards in all interest rates with all other variables held constant would cember 31, 2010 the biggest open exposures were in USD (45%) and SEK have following effects, net of taxes, in income statement and equity: (15%). A 10 percent appreciation of USD would have an effect, net of taxes, of EUR +5.9 million. A corresponding effect on SEK would be EUR EUR million 2009 2010 −2,0 million and on any other currency would be less than EUR 1 million. Effects in A sensitivity analysis of financial instruments as required by IFRS 7, • income statement +/− 0.9 +/− 0.7 excludes following items: projected cash flows for unrecognized firm • equity −/+ 0.1 −/+ 1.7 commitments, advance payments, both short- and long-term purchase contracts and anticipated operational cash flows. The table below The effect in the income statement comprises the changes in the fair presents the effects, net of taxes, of a +/− 10 percent change in EUR value of financial instruments which are directly recognized through foreign exchange rates: profit and loss. The effect in the equity is comprised of the changes in the fair value of available-for-sale financial assets and derivatives 2009 2010 qualifying as effective cash flow hedge instruments for long-term float- EUR million total USD SEK others total ing rate debt. Effects in • income statement +/− 4.3 +/− 9.2 +/− 1.0 +/− 0.9 +/− 11.1 Foreign exchange risk • equity +/− 24.8 +/− 18.6 +/− 6.8 +/− 5.6 +/− 31.0 Metso operates globally and is exposed to foreign exchange risk in several currencies, although the geographical diversity of operations Effect in equity is the fair value change in derivatives contracts qualify- decreases the significance of any individual currency. About 60 percent ing as cash flow hedges for unrecognized firm commitments. Effect of Metso’s net sales originate from outside euro zone; the main curren- in income statement is the fair value change for all other financial cies being EUR, USD, SEK, BRL, AUD and CNY. instruments exposed to foreign exchange risk including derivatives, which qualify as cash flow hedges, to the extent the underlying sales Transaction exposure transaction, recognized under the percentage of completion method, Foreign exchange transaction exposure arises when an operating unit has been recognized as revenue. has commercial or financial transactions and payments in other than its own functional currency, and when related cash inflow and outflow Translation or equity exposure amounts are not equal or concurrent. Foreign exchange translation exposure arises when the equity of In accordance with the Treasury Policy, operating units are required a subsidiary is denominated in currency other than the functional to hedge in full the foreign currency exposures on balance sheet and currency of the parent company. The major translation exposures are other firm commitments. Future cash flows denominated in a currency in CNY, USD and BRL, which altogether comprise around 60 percent other than the functional currency of the unit are hedged with internal of the total equity exposure. Metso is not extensively hedging equity foreign exchange contracts with the Group Treasury for periods, which exposure except USD. As of December 31, 2010 Metso had hedged do not usually exceed two years. The majority of the hedged future 97 percent (82%) of USD denominated net investments to reduce the currency cash flows relate to foreign currency denominated order effect of exchange rate fluctuations. Currently hedging instruments are backlog. In addition, units can hedge anticipated foreign currency foreign currency loans. denominated cash flows. A sensitivity analysis of financial instruments includes foreign cur- Group Treasury monitors the net position of each currency and de- rency loans qualified as net investment hedges. A 10 percent change in cides to what extent a currency position is to be closed. Group Treasury EUR/USD foreign exchange rate would have an effect of EUR 17.6 mil- is however responsible for entering into external forward transaction lion (EUR 17.2 million), net of taxes, in equity. whenever an operating unit applies hedge accounting. Upper limits have been set on the open currency exposures managed by the Group Commodity risk Treasury; limits have been calculated on the basis of their potential Metso is exposed to variations in prices of raw materials and of sup- profit impact. To manage the foreign currency exposure Group Treasury plies including energy. Metso units identify their commodity price may use forward exchange contracts and foreign exchange options. hedging needs and hedges are executed through the Group Treasury
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using approved counterparties and instruments. For commodity risks related to customer financing and seeks to ensure that the principles separate overall hedging limits are defined and approved. Hedging is of the Treasury Policy are adhered to with respect to terms of payment done on a rolling basis with a declining hedging level over time. and required collateral. Metso has no significant concentrations of Electricity exposure in the Scandinavian units has been hedged credit risks. with electricity forwards and fixed price physical contracts, which are The maximum credit risk equals the carrying value of trade and loan designated as hedges of highly probable future electricity purchases. receivables. The credit quality is evaluated both on the basis of aging of Hedging is focused on the estimated energy consumption for the next the trade receivables and also on the basis of customer specific analysis. twelve-month period with some contracts extended to approximately The aging structure of trade receivables is presented in note 19. three years. Execution of electricity hedging has been outsourced to Counterparty risk arises also from financial transactions agreed upon an external broker. As of December 31, 2010 Metso had outstanding with banks, financial institutions and corporates. The risk is managed electricity forwards amounting to 755 GWh (640 GWh). by careful selection of banks and other counterparties, by counterparty To reduce its exposure to the volatility caused by the surcharge for specific limits and netting agreements such as ISDA (Master agreement certain metal alloys (Alloy Adjustment Factor) comprised in the price of of International Swaps and Derivatives Association). The compliance stainless steel charged by its suppliers, Metso has entered into average- with counterparty limits is regularly monitored. price swap agreements for nickel. The Alloy Adjustment Factor is based The maximum amount of financial counterparty risk is calculated as on monthly average prices of its components of which nickel is the the fair value of available-for-sale financial assets, derivatives and cash most significant. As of December 31, 2010 Metso had outstanding nickel and cash equivalents on the balance sheet date. swaps amounting to 486 tons (252 tons). The following table on the sensitivity analysis of the commodity Fair value estimation prices based on financial instruments under IFRS 7 comprises the net For those financial assets and liabilities which have been recognized at aggregate amount of commodities bought through forward contracts fair value in the balance sheet, the following measurement hierarchy and swaps but excludes the anticipated future consumption of raw and valuation methods have been applied: materials and electricity. A 10 percent change upwards or downwards in commodity prices would have following effects, net of taxes: Level 1 Quoted unadjusted prices at the balance sheet date in active markets. The market prices are readily and regularly available EUR million 2009 2010 from an exchange, dealer, broker, market information service Electricity – effect in equity +/− 1.7 +/− 2.5 system, pricing service or regulatory agency. The quoted mar- Electricity – effect in income statement +/− 0.2 +/− 0.2 ket price used for financial assets is the current bid price. Level Nickel – effect in income statement +/− 0.2 +/− 0.6 1 financial instruments include debt and equity investments classified as financial instruments available-for-sale or at fair As cash flow hedge accounting is applied, the effective portion of value through profit and loss. electricity forwards is recognized in equity. The ineffective portion is Level 2 The fair value of financial instruments in Level 2 is determined recognized through profit and loss. Hedge accounting is not applied using valuation techniques. These techniques utilize observ- to nickel agreements, and the change in the fair value is recorded able market data readily and regularly available from an through profit and loss. exchange, dealer, broker, market information service system, Other commodity risks are not managed using financial derivative pricing service or regulatory agency. Level 2 financial instru- instruments. ments include: • Over-the-counter derivatives classified as financial assets/ Credit and counterparty risk liabilities at fair value through profit and loss or qualified for Credit or counterparty risk is defined as the possibility of a customer hedge accounting. or a financial counterparty not fulfilling its commitments towards • Debt securities classified as financial instruments available- Metso. Metso’s operating units are primarily responsible for credit risks for-sale or at fair value through profit and loss. pertaining to sales and procurement activities. The units assess the Level 3 A financial instrument is categorized into Level 3 if the calcula- credit quality of their customers, by taking into account their financial tion of the fair value cannot be based on observable market position, past experience and other relevant factors. When appropriate, data. Metso had no such instruments in 2009 or in 2010. advance payments, letters of credit and third party guarantees are used to mitigate credit risks. Group Treasury provides centralized services The tables below present Metso’s financial assets and liabilities that are measured at fair value.
December 31, 2009 December 31, 2010 EUR million Level 1 Level 2 Level 3 EUR million Level 1 Level 2 Level 3 Assets Assets Financial assets at fair value through profit and loss Financial assets at fair value through profit and loss • Derivatives - 14 - • Derivatives - 18 - • Securities - 40 - • Securities 12 47 - Derivatives qualified for hedge accounting - 7 - Derivatives qualified for hedge accounting - 39 - Available for sale investments Available for sale investments • Equity investments 9 - - • Equity investments 1 - - • Debt investments 130 79 - • Debt investments 320 27 - Total assets 139 140 - Total assets 333 131 -
Liabilities Liabilities Financial liabilities at fair value through profit and loss Financial liabilities at fair value through profit and loss • Derivatives - 10 - • Derivatives - 13 - Derivatives qualified for hedge accounting - 16 - Derivatives qualified for hedge accounting - 20 - Total liabilities - 26 - Total liabilities - 33 -
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3 Critical accounting estimates and judgments
The preparation of the consolidated financial statements requires ment depends also on factors beyond management control, which management to make estimates and judgments affecting the amounts cannot be foreseen when initiating the hedge relationship. Such factors reported in the consolidated financial statements and accompanying can be a change in the market environment causing the other party to notes. These estimates and judgments, based on historical evidence postpone or cancel the commitment. To the extent possible manage- and plausible future scenarios, are continually evaluated. Following ment tries to include in the contracts clauses reducing the impact of assets and liabilities include a high degree of management estimate such adverse events to its results. and assumptions and their carrying value can therefore materially differ from current value in the next financial year. Accounting for income taxes As part of the process of preparing its consolidated financial state- Trade receivables ments, Metso is required to estimate the income taxes in each of the Metso’s policy is to maintain a provision for bad debt based on the jurisdictions and countries in which it operates. This process involves best estimate of the amounts that are potentially uncollectable at the estimating the actual current tax exposure together with assessing balance sheet date. The estimates are based on a systematic, on-going temporary differences resulting from differing treatment of items, review and evaluation performed as part of the credit-risk evalua- such as deferred revenue and cost reserves, for tax and accounting tion process. As part of this evaluation, Metso takes into account the purposes. These differences result in deferred tax assets and liabilities, history of collections, the size and compositions of the receivable which are included in the consolidated balance sheet. The likelihood balances, current economic events and conditions and other pertinent for the recovery of deferred tax assets from future taxable income is information. assessed, and to the extent the recovery is not considered likely the deferred asset is adjusted in accordance. Inventory Significant management judgment is required in determining the Metso’s policy is to maintain a provision for slow-moving and obsolete provision for income taxes and the deferred tax assets. Metso has inventory based on the best estimate of such amounts at the balance recorded net deferred tax assets of EUR 118 million as of December 31, sheet date. The estimates are based on a systematic, on-going review 2010, adjusted by EUR 10 million for uncertainties related to its ability to and evaluation of inventory balances. As part of this evaluation, Metso utilize some of the deferred tax assets, primarily consisting of operat- also considers the composition and age of the inventory as compared ing losses carried forward and deductible temporary differences for to anticipated future needs. certain foreign subsidiaries and the final outcome of tax audits in some subsidiaries. The adjustment is based on Metso’s estimates of taxable Revenue recognition income by country in which it operates, and the period over which Metso delivers complete installations to its customers, where the the deferred tax assets will be recoverable based on estimated future moment of signing a sales contract (firm commitment) and the final taxable income and planned tax strategies to utilize these assets. In the acceptance of a delivery by the customer may take place in different event that actual results differ from these estimates, the deferred tax financial periods. In accordance with its accounting principles, Metso asset needs to be adjusted in coming financial years. The final outcome applies the percentage of completion method (“POC method”) for rec- may also be affected by future changes in tax laws applicable in the ognizing such long-term delivery contracts. In year 2010, approximately jurisdictions where Metso operates. 37 percent of the net sales were recognized under the POC method, which is based on predetermined milestones and where the revenue Allocation of purchase price to acquired assets is recognized based on the estimated realized value added or on the In accordance with the accounting principles, the purchase price is al- cost-to-cost method. A projected loss on a firm commitment is recog- located to the acquired assets and assumed liabilities the excess being nized through profit and loss, when it becomes known. The estimated recognized as goodwill in the balance sheet. Whenever feasible, Metso revenue, the costs and profit, together with the planned delivery has used as a basis for such allocations readily available market values schedule of the projects are subject to regular revisions as the contract to determine the fair value to be recognized. However, when this has progresses to completion. Revisions in profit estimates are charged not been possible, as often is the case with non-current intangible through profit and loss in the period in which the facts that give rise to assets and certain assets with no active markets or available price the revision become known. Although Metso has significant experi- quotations, the valuation has been based on past performance of such ence using the POC method, the total costs estimated to be incurred asset and expected future cash generating capacity. The appraisals, on projects may change over time due to changes in the underlying which have been based on current replacement costs, discounted cash project cost structures, which may ultimately affect the revenue recog- flows and estimated selling prices depending on the underlying asset, nized. Therefore, the POC method is not applied for recognizing sales require management to make estimates and assumptions of the future commitments where the final outcome of the project and related cost performance and use of these assets and their impact on the financial structure cannot be pre-established reliably. position. Any change in Metso’s future business priorities and orienta- tions may affect the planned outcome of initial appraisals. Hedging of foreign currency denominated firm commitments Impairment testing Under Metso hedging policy units have to hedge their foreign currency The carrying value of identifiable intangible assets with indefinite risk when they become engaged in a firm commitment denominated economic life such as goodwill is tested annually or more frequently if in a currency different of their functional currency, the commitment events or changes in circumstances indicate that such carrying value can be either internal to Metso or external. When a firm commitment may not be recoverable. The carrying values of property, plant and qualifies for recognition under the percentage of completion method, equipment and intangible assets, subject to depreciation and amortiza- the unit applies cash flow hedge accounting and recognizes the ef- tion are reviewed for impairment whenever there are indications that fect of the hedging instruments in the OCI until the commitment is their carrying values could exceed their value in use or disposal value if recognized. Though Metso has defined the characteristics triggering disposal is considered as a possible option. a firm commitment, the final realization of the unrecognized commit-
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Triggering events for impairment reviews include the following: Pensions In accordance with IAS 19, the pension benefit expense is based on as- • Material permanent deterioration in the economic or political envi- sumptions that include the following: ronment of the customers’ or of own activity • Significant under-performance relative to historical or projected • A weighted average expected return assessed in the beginning of the future performance financial year on plan assets. Actual return on plan assets may differ • Significant changes in Metso’s strategic orientations affecting the significantly based on market activity. business plans and previous investment policies • An assumed discount rate based on rates observed in the beginning of the financial year to be used in the calculation of the current year The policy related to the impairment tests is based on numerous pension expense and pension liability balance. This rate may not be estimates. The valuation is inherently judgmental and highly suscep- indicative of actual rates realized in the market. tible to change from period to period because it requires Metso to • Estimated rates of future pay increases. Actual increases may not make assumptions about future supply and demand related to its reflect estimated future increases. Due to the significant change in individual business units, future sales prices and achievable cost sav- the Group’s structure and the uncertainty of the global market place, ings. The value of the benefits and savings expected from the efficiency these estimates are difficult to project. improvement programs are inherently subjective. The fair value of the cash generating units is determined using a derived weighted average The actuarial experience that differs from the assumptions and changes cost of capital as the rate to discount estimated future cash flows. This in the assumptions results in gains and losses, which are recognized in rate may not be indicative of actual rates obtained in the market. In the OCI. A one percentage point increase in the expected return on plan the annual goodwill impairment test, a 0.5 percentage point reduction assets would have reduced pension benefit expense by approximately in the terminal growth rate applied for determining the fair values of EUR 3 million, and a one percentage point decrease in the expected the cash generating units would have reduced the total value of units return on plan assets would have increased pension benefit expense by tested by 4 percent and would not have caused impairment. A second approximately EUR 3 million for the year ended December 31, 2010. sensitivity test with a two percentage point increase in the discount rates combined with the lower terminal growth rate would have Share-based payments reduced the fair values by 21 percent causing the carrying value of the Share-based payment plans and related incentive programs include Fabrics business line to exceed the net present value of cash flows by vesting conditions such as targets for operating profit, earnings per EUR 34 million. share and total shareholder return, and service year requirements subsequent to the grant date. The maximum share reward is in relation Reserve for warranty and guarantee costs to each participant’s annual salary. At each balance sheet date, the The warranty and guarantee reserve is based on the history of past management revises its estimates for the number of shares that are ex- warranty costs and claims on machines and equipment under warranty. pected to vest. As part of this evaluation, Metso takes into account the The typical warranty period is 12 months from the date of customer changes in the forecasted performance of the Group and its reporting acceptance of the delivered equipment. For larger projects, the aver- segments, the expected turnover of the personnel benefiting from the age warranty period is two years. For sales involving new technology incentive plan and other pertinent information impacting the number of and long-term delivery contracts, additional warranty reserves can be shares to be vested. established on a case by case basis to take into account the potentially increased risk. Financial instruments In accordance with the disclosure requirements on financial instruments, the management is obliged to make certain assumptions of the future cash in- and outflows arising from such instruments. The management has also had to assume that the fair values of derivatives, especially for- eign currency denominated derivatives at balance sheet date materially reflect the future realized cash in- or outflow of such instruments.
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4 Selling, general 5 Other operating income and administrative expenses and expenses, net
Year ended December 31, Year ended December 31, EUR million 2008 2009 2010 EUR million 2008 2009 2010 Marketing and selling expenses −543 −480 −527 Gain on sale of subsidiaries and businesses 1) 4 0 1 Research and development expenses, net −127 −105 −110 Gain on sale of fixed assets 2 4 2 Administrative expenses −373 −353 −391 Gain on sale of available-for-sale Total −1,043 −938 −1,028 equity investments 2 23 9 Rental income 3 2 3 Foreign exchange gains 2) 43 55 50 Intellectual property settlements - - 32 Research and development expenses, net, consist of following: Other income 9 9 14 EUR million 2008 2009 2010 Other operating income, total 63 93 111 Research and development expenses, total −134 −115 −111 Capitalized development costs 0 0 0 Loss on sale of subsidiaries and businesses 0 −1 0 Capital expenditure 7 9 3 Write-downs on fixed assets −4 −5 −6 Grants received 5 5 6 Foreign exchange losses 2) −41 −55 −36 Depreciation and amortization −5 −4 −8 Net effect for prior years' ICMS (VAT) credits in Brazil - - −5 Research and development expenses, net −127 −105 −110 Intellectual property lawsuits - - −5 Other expenses −7 −8 −9 Other operating expenses, total −52 −69 −61
Other operating income and expenses, net 11 24 50
1) Gains on sale of panelboard operations in Nastola, Finland and Sundsvall, Sweden, as well as spreader roll manufacturing business (Finbow) and shares in Sweden-based Metso Foundries Karlstad AB for the year ended December 31, 2008. For the year ended December 31, 2010, gain on sale of Flexowell conveyor belt operations in Germany.
2) Includes foreign exchange gains and losses resulting from trade receivables and payables and related derivatives.
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6 Personnel expenses and the number of personnel
Personnel expenses: Board remuneration: Year ended December 31, Year ended December 31, EUR million 2008 2009 2010 EUR thousand 2008 2009 20102) Salaries and wages −1,064 −989 −1,100 Serving Board members December 31, 2010: Pension costs, defined contribution plans −86 −84 −84 Jukka Viinanen −44 −88 −129 Pension costs, defined benefit plans 1) −10 −13 −12 Maija-Liisa Friman −58 −53 −79 Other post-employment benefits 1) −3 −3 −3 Mikael von Frenckell - - −51 Share-based payments −2 −2 −6 Christer Gardell −56 −53 −69 Other indirect employee costs −208 −203 −220 Yrjö Neuvo −56 −53 −70 Total −1,373 −1,294 −1,425 Erkki Pehu-Lehtonen - - −51 1) For more information on pension costs, see note 28. Pia Rudengren - −40 −68 Jukka Leppänen1) −7 −7 −8 Number of personnel at end of year: Former Board members: 2008 2009 2010 Jaakko Rauramo −67 −64 −20 Mining and Construction Technology 11,259 9,541 10,206 Arto Honkaniemi −46 −53 −17 Energy and Environmental Technology 6,357 6,060 6,073 Matti Kavetvuo −105 −25 - Paper and Fiber Technology 10,544 10,459 10,362 Svante Adde −12 - - Valmet Automotive 783 679 1,425 Eva Liljeblom −12 - - Group Head Office and other 379 427 527 Total −463 −436 −562 Group Head Office and others total 1,162 1,106 1,952 1) Has attended meetings as a personnel representative, no voting right. 2) In addition to 2010 remuneration includes also remuneration until the end of Metso total 29,322 27,166 28,593 Annual General Meeting in 2011.
Average number of personnel during the period: According to the resolution of the Annual General Meeting held on 2008 2009 2010 March 30, 2010, the annual fees of the Board members were kept intact Mining and Construction Technology 10,481 10,397 9,812 and are as follows: Chairman EUR 92,000, Vice Chairman EUR 56,000, Energy and Environmental Technology 6,160 6,254 6,027 and other members EUR 45,000 each. The Annual General Meeting de- Paper and Fiber Technology 10,256 10,085 10,412 cided that 40 percent of the fixed annual remuneration will be paid in Valmet Automotive 744 670 840 Metso shares. The Board members acquired the shares from the market Group Head Office and other 369 407 494 within two weeks after the publication of the first-quarter 2010 Interim Group Head Office and others total 1,113 1,077 1,334 Review on April 29, 2010. In addition, an attendance fee of EUR 600 per Metso total 28,010 27,813 27,585 meeting is paid to all members for meetings of the Board and its Com- mittees. Compensation for traveling expenses and daily allowances are paid in accordance with Metso’s travel policy.
Remuneration paid to Chief Executive Officer, Executive Vice President and other Executive Team members:
Paid Annual performance Fringe Share-based Number of EUR salary bonus benefits payment Total shares granted 2008 President and CEO 546,034 232,283 13,604 254,453 1,046,374 3,717 Executive Vice President 382,999 159,448 21,776 181,752 745,975 2,655 Other Executive Team members 1,207,033 385,852 72,182 642,874 2,307,941 9,391 Total 2,136,066 777,583 107,562 1,079,079 4,100,290 15,763
2009 President and CEO 525,232 133,178 13,999 32,831 705,240 1,668 Executive Vice President 367,951 74,445 23,847 23,140 489,383 1,192 Other Executive Team members 1,222,041 299,330 56,466 79,843 1,657,680 4,136 Total 2,115,224 506,953 94,312 135,814 2,852,303 6,996
2010 President and CEO 550,790 263,752 12,812 - 827,354 - Executive Vice President 1) 396,288 143,722 21,779 - 561,789 - Other Executive Team members 1,364,759 322,783 56,817 - 1,744,359 - Total 2,311,837 730,257 91,408 - 3,133,502 -
1) Olli Vaartimo until September 30, 2010 and Matti Kähkönen from October 1, 2010.
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Additionally, in 2011 a bonus of about EUR 253,000 will be paid to Presi- Remuneration paid to Executive Vice President (since October 1, dent and CEO Jorma Eloranta and an estimated bonus of about EUR 2010) Matti Kähkönen is presented in the table on the previous page. 192,000 to Executive Vice President Matti Kähkönen based on year 2010 The fringe benefits comprised a company car and a telephone. Mr. performance. Kähkönen participates in the remuneration and commitment program Remuneration paid to President and CEO Jorma Eloranta is pre- for Metso’s management, the remuneration of which consists of Metso sented in the table on the previous page. The fringe benefits com- shares and a cash-settled portion. prised a company car and a telephone. Mr. Eloranta participates in the According to his executive contract, Matti Kähkönen is eligible to remuneration and commitment program for Metso’s management, the retire at the age of 63 (August 2019) and his retirement pension is 60 remuneration of which consists of Metso shares and a cash-settled por- percent of his pensionable compensation during the past four service tion. For more information on share-based payments, see note 23. years. In case of termination of contract, he is entitled to compensation According to his executive contract, Jorma Eloranta is eligible to equivalent to 24 months’ salary. retire at the age of 60 (February 2011) and his retirement pension is Matti Kähkönen, who will start as Metso’s President and CEO on 60 percent of his pensionable compensation during the past four or March 1, 2011, has acted as Metso’s Executive Vice President and Deputy ten service years, whichever results in a greater amount. to the CEO and as Vice Chairman of the Metso Executive Team starting Remuneration paid to Executive Vice President (until September 30, October 1, 2010. 2010) and CFO Olli Vaartimo is presented in the table on the previous Metso has subscribed pension plans for senior management for page. The fringe benefits comprised a company car, an apartment and retirement at the age of 60–63, the beneficiaries include some mem- a telephone. Mr. Vaartimo participates in the remuneration and com- bers of the Metso Executive Team. For the years ended December 31, mitment program for Metso’s management, the remuneration of which 2008, 2009 and 2010, the pension insurance premium payments totaled consists of Metso shares and a cash-settled portion. approximately EUR 2.3 million, EUR 3.0 million and EUR 3.0 million, According to his executive contract, Olli Vaartimo is eligible to retire respectively. at the age of 60 (September 2010) and his retirement pension is 60 percent of his pensionable compensation during the past four or ten service years, whichever results in a greater amount.
Board share ownership in Metso as at December 31, 2010: Executive Team share ownership in Metso as at December 31, 2010:
Jukka Viinanen 2,377 Jorma Eloranta 32,185 Maija-Liisa Friman 2,338 Matti Kähkönen 12,328 Mikael von Frenckell 100,673 Olli Vaartimo 12,277 Christer Gardell 673 Pasi Laine 9,437 Yrjö Neuvo 7,773 Bertel Langenskiöld 10,454 Erkki Pehu-Lehtonen 1,423 Kalle Reponen 4,155 Pia Rudengren 673 Total 80,836 Jukka Leppänen1) 520 Total 116,450 1) Has attended meetings as a personnel representative, no voting right.
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7 Depreciation and amortization
Depreciation and amortization expenses consist of the following: Depreciation and amortization by function are as follows:
Year ended December 31, Year ended December 31, EUR million 2008 2009 2010 EUR million 2008 2009 2010 Intangible assets –44 –41 −58 Cost of goods sold –80 –82 −100 Property, plant and equipment Selling, general and administrative expenses Buildings and structures –20 –21 −24 Marketing and selling –14 –15 −23 Machinery and equipment –74 –81 −96 Research and development –5 –4 −8 Total –138 –143 −178 Administrative –39 –42 −47 Total –138 –143 −178
8 Financial income and expenses, net
Year ended December 31, EUR million 2008 2009 2010 Financial income Dividends received 0 0 0 Interest income on cash and cash equivalents 14 15 12 Income on financial investments 0 2 6 Other financial income 2 3 3 Financial income total 16 20 21
Financial expenses Interest expenses from financial liabilities at amortized cost –70 –74 −69 Interest expenses on financial leases –1 –1 0 Other financial expenses –10 –13 −14 Net gain (+) / loss (−) from foreign exchange –24 –4 −13 Financial expenses total –105 –92 −96
Financial income and expenses, net –89 –72 −75
9 Income taxes
The components of income taxes are as follows: The differences between income tax expense computed at Finnish statutory rate and income tax expense provided on earnings are Year ended December 31, as follows: EUR million 2008 2009 2010 Year ended December 31, Current tax expense –145 –96 −123 EUR million 2008 2009 2010 Deferred taxes –13 25 11 Income before taxes 548 222 370 Income taxes, total –158 –71 −112 Income tax expense at Finnish statutory rate –142 –58 −96 Income tax for prior years 11 –9 −3 Difference between Finnish and foreign tax rates –25 –13 −19 Benefit of operating loss carryforward 0 0 1 Operating losses with no current tax benefit –2 –2 −2 Non-deductible expenses –2 –1 −1 Other 2 12 8 Income tax expense –158 –71 −112
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Reconciliation of deferred tax balances
Balance at Charged to Charged to share- Translation dif- Acquisitions Balance at EUR million beginning of year income statement holders' equity ferences and disposals end of year 2009 Deferred tax assets Tax losses carried forward 35 14 –9 1 - 41 Fixed assets 14 2 - - 1 17 Inventory 34 –1 - - - 33 Provisions 27 6 –4 - - 29 Accruals 32 –3 - - - 29 Pension related items 33 0 –1 - - 32 Other 42 –1 –3 5 - 43 Total deferred tax assets 217 17 –17 6 1 224 Offset against deferred tax liabilities 1) –43 –10 - - - –53 Net deferred tax assets 174 7 –17 6 1 171
Deferred tax liabilities Purchase price allocations 54 –4 - - 19 69 Fixed assets 15 1 - - 10 26 Other 19 –5 –1 - 1 14 Total deferred tax liabilities 88 –8 –1 - 30 109 Offset against deferred tax assets 1) –43 –10 - - - –53 Net deferred tax liabilities 45 –18 –1 - 30 56
Deferred tax assets, net 129 25 –16 6 –29 115
Balance at Charged to Charged to share- Translation dif- Acquisitions Balance at EUR million beginning of year income statement holders' equity ferences and disposals end of year 2010 Deferred tax assets Tax losses carried forward 41 2 −10 - - 33 Fixed assets 17 1 - - - 18 Inventory 33 2 - - - 35 Provisions 29 −3 - - - 26 Accruals 29 2 - - - 31 Pension related items 32 2 5 - - 39 Other 43 - −8 5 - 40 Total deferred tax assets 224 6 −13 5 - 222 Offset against deferred tax liabilities 1) −53 −1 - - - −54 Net deferred tax assets 171 5 −13 5 - 168
Deferred tax liabilities Purchase price allocations 69 −8 - - - 61 Fixed assets 26 1 - - - 27 Other 14 2 - - - 16 Total deferred tax liabilities 109 −5 - - - 104 Offset against deferred tax assets 1) −53 −1 - - - −54 Net deferred tax liabilities 56 −6 - - - 50
Deferred tax assets, net 115 11 −13 5 - 118
1) Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority.
A deferred tax liability on undistributed profits of subsidiaries located in countries where distribution generates tax conse- quences is recognized when it is likely that earnings will be distributed in the near future. For the years ended December 31, 2009 and 2010, respectively, earnings of EUR 196 million and EUR 263 million would have been subject to recognition of a deferred tax liability, had Metso regarded a distribution in the near future as likely.
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10 Acquisitions
Acquisitions in 2010 Acquisition of Tamfelt in 2009 In November 2010, Metso announced Valmet Automotive having Metso acquired Tamfelt Corporation, a Finnish corporation listed in the acquired Karmann’s convertible roof business in Germany and Poland NASDAQ OMX Helsinki exchange, through a public share exchange of- from the administrative receivers. The acquisition complements Valmet fer that was completed at the end of December 2009. The total transac- Automotive’s service offering in line with its strategy in convertible tion value was EUR 215 million whereof EUR 206 million was compen- engineering and manufacturing services and particularly in compo- sated by offering 8,593,642 new Metso shares representing 95.2% of nent manufacturing. The purchase consideration for the transaction Tamfelt’s shares and votes. Prior to the transaction, Metso held Tamfelt amounted to EUR 33 million (EUR 24 million net of cash), the direct shares worth EUR 4 million i.e. 2.8% of Tamfelt’s shares and votes. The acquisition costs, which were expensed and reported under other oper- remaining 2.0% of Tamfelt’s shares, amounting to EUR 4 million, were ating expenses, being less than EUR 2 million. Metso did not recognize redeemed in accordance with the Finnish Companies Act and Metso any goodwill on the transaction. The fair values presented in below paid the redemption price with the interest accrued thereon in Sep- table are preliminary. tember 2010. The transaction value included EUR 5 million in expenses The consolidated income statement for the year ended December 31, and transfer taxes related to the acquisition. 2010 includes the impact of the acquired business with net sales of EUR The transaction value, together with the shares already held, 12 million and a net loss of close to EUR 1 million. The currency transla- exceeded the net assets of Tamfelt by EUR 117 million. The fair value tion impact relating to the acquired net investment reported under allocations are presented in the table hereafter. The goodwill of EUR other comprehensive income/expense was immaterial. The Karmann 73 million from the transaction was split in 2010 between the new business was consolidated to Metso from November 21, 2010 onwards Fabrics business line for EUR 33 million and Paper business line for EUR and is reported under Valmet Automotive in the segment note. Had the 40 million, reflecting the value of assembled workforce, significant syn- business been acquired on January 1, 2010 the increase to Metso’s net ergy benefits and widened business portfolio offering Metso potential sales, including the holding period, would have been roughly EUR 170 to expand its operations into new markets and customer segments. million. An estimate of whole year net income impact to Metso is not Had the acquisition occurred on January 1, 2009, Metso’s net sales possible as the business was managed by administrative receivers and would have increased by EUR 130 million. The calculation of pro forma certain parts of the business were acquired as separate assets. net income of the acquired business would be impractical considering In July Metso acquired the service business of Wyesco of Louisiana the effects of the acquisition cost. L.L.C., in Louisiana, USA for a purchase price of EUR 3 million. This busi- ness, which was consolidated from July 19, 2010 onwards into the Paper Details of the acquired net assets and goodwill are as follows: and Fiber Technology segment, is a diverse repair service provider for pulp mills and related industry. The net sales and the net income Carrying Fair value impact to Metso are immaterial. EUR million value allocations Fair value Intangible assets 4 50 54 Summary information on acquisitions made in 2010: Property, plant and equipment 87 10 97 Inventories 30 - 30 EUR million Fair value Trade and other receivables 30 - 30 Intangible assets 6 Deferred tax liabilities, net −9 −16 −25 Property, plant and equipment 11 Other liabilities assumed −23 - −23 Inventories 11 Non-interest bearing net assets 119 44 163 Trade and other receivables 2 Deferred tax liabilities 0 Cash and cash equivalents acquired 19 Other liabilities assumed −4 Debt assumed −36 Non-interest bearing net assets 26 Transaction value −215 Pre-acquisition holding of Tamfelt shares −4 Cash and cash equivalents acquired 9 Goodwill 73 Purchase price −36 Goodwill 1 Transaction value settled in cash −5 Cash and cash equivalents acquired 19 Purchase price −36 Net cash inflow on acquisition in 2009 14 Purchase price adjustment payable in 2011 10 Cash and cash equivalents acquired 9 Amounts settled in 2010 −4 Net cash outflow on acquisitions in 2010 −17 Total cash inflow on Tamfelt acquisition 10
Metso recognized intangible assets relating to the acquired business as follows:
EUR million Amortization periods Fair value Technology 8 years 1 Customer relationships 9 to 10 years 36 Customer agreements 1 to 3 years 6 Order backlog 1 year 7 Other intangible assets 1 to 9 years 4 Total 54
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Other acquisitions in 2009 Acquisitions in 2008 In January Metso and Wärtsilä combined Metso’s Heat & Power busi- In 2008 Metso made various minor acquisitions for a total purchase ness with Wärtsilä’s Biopower business into a new company MW Power consideration of EUR 48 million. The combined effect of the acquisi- Oy, of which Metso owns 60% and Wärtsilä 40%. The company is fully tions is presented in the table below. consolidated into the Energy and Environmental Technology segment’s Power business line. Carrying Fair value In October Metso acquired M&J Industries A/S, a Danish manufac- EUR million value allocations Fair value turer of mobile and stationary products for solid-waste crushing. The Intangible assets 0 12 12 company was integrated into the Recycling business line of Metso’s Property, plant and equipment 10 3 13 Energy and Environmental Technology segment. Inventories 24 - 24 During 2009 Metso acquired in China Kromatek (Shanghai) Co. Ltd., Trade and other receivables 18 - 18 with a chromium plating business and in Oregon, USA a division of Pa- Deferred tax liabilities −1 −4 −5 cific/Hoe Saw&Knife Company with a coater, creping and doctor blade Non-controlling interests −3 - −3 business. Both businesses were combined into Metso’s Paper and Fiber Other liabilities assumed −24 - −24 Technology segment. Non-interest bearing net assets 24 11 35
Summary information on other acquisitions made in 2009 is as follows: Cash and cash equivalents acquired 13 Pre-acquisition investment in associated Carrying Fair value companies (Valmet-Xi'an) −6 EUR million value allocations Fair value Debt assumed −11 Intangible assets 1 9 10 Purchase price −48 Property, plant and equipment 5 3 8 Goodwill 17 Inventories 28 - 28 Trade and other receivables 21 - 21 Purchase price settled in cash −48 Deferred tax liabilities −1 −3 −4 Settlement of acquired debt −9 Other liabilities assumed −44 - −44 Cash and cash equivalents acquired 13 Non-interest bearing net assets 10 9 19 Net cash outflow on acquisitions −44
Cash and cash equivalents acquired 9 Metso recognized intangible assets relating to the acquired Debt assumed −20 businesses as follows: Purchase price −19 Goodwill 11 EUR million Amortization periods Fair value Technology 10 years 3 Purchase price settled in cash −19 Customer relationships 5 to 7 years 7 Deferred payments on prior year acquisitions −5 Order backlog 1 year 2 Cash and cash equivalents acquired 9 Total 12 Net cash outflow on acquisitions −15
Metso recognized intangible assets relating to the acquired businesses as follows:
EUR million Amortization periods Fair value Technology 10 years 3 Customer relationships 5 years 5 Order backlog 1 year 1 Other intangible assets 5 years 1 Total 10
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11 disposals of businesses 12 earnings per share
In November 2010 Metso sold its 60 percent holding in Valmet Dura Oy, Earnings per share are calculated as follows: Finland, from its Paper and Fiber Technology segment. This transaction had no material impact on Metso. Basic In April, 2010 Metso divested the Flexowell conveyor belt operations Basic earnings per share are calculated by dividing the profit attribut- in Germany to ContiTech Transportbandsysteme GmbH. Flexowell was able to shareholders of the company by the weighted average number part of Metso’s Mining and Construction Technology segment. Metso of shares in issue during the year, excluding own shares. recognized a small gain on this divestment. In May 2009, Metso sold Metso Paper Turku Works Oy in Finland to Year ended December 31, Stairon Oy. The company manufactures air systems for the pulp and 2008 2009 2010 paper industry and it was part of Metso’s Paper business line. The sale Profit attributable to shareholders of the had no significant impact on Metso. company, EUR million 389 150 257 In January 2009, Metso sold the composites manufacturing business and related assets in Oulu, Finland, to xperion Oy for a consideration of Weighted average number of shares issued and EUR 2 million. The unit was part of Metso’s Paper business line. outstanding (in thousands) 141,595 141,477 149,683 In September 2008, Metso divested the shares in Sweden-based Metso Foundries Karlstad AB to a group of financial investors repre- Basic earnings per share, EUR 2.75 1.06 1.71 sented by Primaca Group Oy. Metso will continue as a minority owner with a 16.7 percent holding in Heavycast Oy, a new company to which Diluted the Primaca Group transferred the acquired shares. The value of the The shares to be potentially issued in the future are treated as out- transaction was approximately EUR 15 million, and Metso recognized a standing shares when calculating the “Diluted earnings per share” if small tax-free capital gain from the sale. The divested business was part they have a diluting effect. The own shares held by Metso are reissued of Paper and Fiber Technology segment. within the terms of the share ownership plan to the key personnel if In May 2008, Metso sold its spreader roll manufacturing business and the targets defined in the plan are met. The diluted earnings per share related assets located in Nokia, Finland to a group of Finnish investors. are calculated by increasing the weighted average number of outstand- They continued the business under the name of Finbow Oy. The divest- ing shares with the number of those shares, which would be distribut- ment was not material for Metso. The divested business was part of ed to the beneficiaries based on the results achieved, if the conditional Paper and Fiber Technology. earning period ended at the end of the financial period in question. As In January 2008, Metso concluded the divestment of its Panelboard at December 31, 2010, Metso held 718,397 own shares intended for the business. The panelboard operations in Nastola, Finland and Sundsvall, share ownership plans. Sweden were divested to the German company Dieffenbacher GmbH + Co. KG. The transaction price was EUR 2 million. Year ended December 31, None of these businesses qualified as separate business line within 2008 2009 2010 Metso, hence was not classified as discontinued operations. The gains Profit attributable to shareholders of the on these disposals are reported under other operating income and company, EUR million 389 150 257 expenses, net. Weighted average number of shares issued and The business disposals were as follows: outstanding (in thousands) 141,595 141,477 149,683 Year ended December 31, Adjustment for potential shares distributed EUR million 2008 2009 2010 (in thousands) - 49 154 Cash and cash equivalents 0 2 4 Weighted average number of diluted shares Intangible assets 1 0 0 issued and outstanding (in thousands) 141,595 141,526 149,837 Property, plant and equipment 5 2 3 Goodwill 1 - 1 Diluted earnings per share, EUR 2.75 1.06 1.71 Other assets 5 4 6 Non-controlling interests - - −1 Liabilities sold −4 −3 −3 Net assets of disposed businesses 8 5 10
Gain (+) / loss (−) on disposal 4 −1 2 Total consideration 12 4 12
Consideration received in cash 12 4 12 Cash and cash equivalents disposed of 0 −2 −4 Net cash inflow on disposals 12 2 8
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13 Intangible assets and property, plant and equipment
Intangible assets Patents and Capitalized Other intangible Intangible assets EUR million Goodwill licences software assets total 2009 Acquisition cost at beginning of year 778 70 85 281 1,214 Translation differences 3 0 1 4 8 Business acquisitions 82 3 6 65 156 Disposals of businesses - - - 0 0 Capital expenditure - 3 8 21 32 Reclassifications - 4 23 –26 1 Decreases - –6 –3 –3 –12 Acquisition cost at end of year 863 74 120 342 1,399
Accumulated amortization at beginning of year - –40 –44 –98 –182 Translation differences - 0 –1 0 –1 Business acquisitions 1) - –1 –4 –3 –8 Disposals of businesses - - - 0 0 Reclassifications - 0 0 0 0 Decreases - 3 3 2 8 Amortization charges for the year - –7 –11 –23 –41 Accumulated amortization at end of year - –45 –57 –122 –224
Net book value at end of year 863 29 63 220 1,175
2010 Acquisition cost at beginning of year 863 74 120 342 1,399 Translation differences 16 1 3 9 29 Business acquisitions 1) 4 6 - −3 7 Disposals of businesses −1 - - - −1 Capital expenditure - 2 2 21 25 Reclassifications - 5 24 −29 0 Decreases −2 −9 −2 −17 −30 Acquisition cost at end of year 880 79 147 323 1,429
Accumulated amortization at beginning of year - −45 −57 −122 −224 Translation differences - −1 −2 −1 −4 Business acquisitions - 0 - - 0 Disposals of businesses - - - - - Reclassifications - 0 0 0 0 Decreases - 7 0 17 24 Amortization charges for the year - −8 −13 −37 −58 Accumulated amortization at end of year - −47 −72 −143 −262
Net book value at end of year 880 32 75 180 1,167
1) Preliminary fair value allocations of Tamfelt business acquired in December 2009 were changed during 2010. The goodwill increased by EUR 3 million and other intangible assets were reduced accordingly.
Metso participates in the European Emissions Tradings Scheme (EU ETS) and has been granted CO2 emission rights of 70,972 units for the current compliance period of 2008–2012 against greenhouse gases emitted by its production units. As of December 31, 2010, the remaining emission rights amounted to 44,095 units the market value of which was roughly EUR 0.6 million.
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Property, plant and equipment
Land and water Buildings and Machinery and Assets under Property, plant and EUR million areas structures equipment construction equipment total 2009 Acquisition cost at beginning of year 58 522 1,224 63 1,867 Translation differences 1 8 40 0 49 Business acquisitions 1 71 189 1 262 Disposals of businesses - - –7 - –7 Capital expenditure 2 5 37 40 84 Reclassifications 0 9 47 –57 –1 Decreases 0 –20 –28 0 –48 Acquisition cost at end of year 62 595 1,502 47 2,206
Accumulated depreciation at beginning of year - –283 –858 - –1,141 Translation differences - –4 –25 - –29 Business acquisitions - –39 –118 - –157 Disposals of businesses - - 5 - 5 Reclassifications - 0 0 - 0 Decreases - 13 24 - 37 Depreciation charges for the year - –21 –81 - –102 Accumulated depreciation at end of year - –334 –1,053 - –1,387
Net book value at end of year 62 261 449 47 819
2010 Acquisition cost at beginning of year 62 595 1,502 47 2,206 Translation differences 2 22 76 3 103 Business acquisitions 0 5 10 0 15 Disposals of businesses - −3 −12 - −15 Capital expenditure 0 14 35 60 109 Reclassifications 0 21 45 −66 0 Decreases 0 −18 −53 −1 −72 Acquisition cost at end of year 64 636 1,603 43 2,346
Accumulated depreciation at beginning of year - −334 −1,053 - −1,387 Translation differences - −10 −50 - −60 Business acquisitions - −1 −3 - −4 Disposals of businesses - 2 10 - 12 Reclassifications - - - - - Decreases - 14 48 - 62 Depreciation charges for the year - −24 −96 - −120 Accumulated depreciation at end of year - −353 −1,144 - −1,497
Net book value at end of year 64 283 459 43 849
For information on pledged assets, see note 29.
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Intangible assets arising from fair value allocations relating to acquired businesses Acquired Customer Other intangible EUR million Order backlog Technology Patents relationships Brands intangibles assets total 2009 Acquisition cost at beginning of year 3 58 6 80 16 1 164 Translation differences 0 1 - 2 0 0 3 Business acquisitions 8 3 - 40 - 10 61 Changes in allocations ------Decreases ------Acquisition cost at end of year 11 62 6 122 16 11 228
Accumulated amortization at beginning of year –2 –15 –4 –14 - - –35 Translation differences 0 0 - 0 - 0 0 Decreases ------Amortization charges for the year –1 –7 –1 –9 - –1 –19 Accumulated amortization at end of year –3 –22 –5 –23 - –1 –54
Net book value at end of year 8 40 1 99 16 10 174
2010 Acquisition cost at beginning of year 11 62 6 122 16 11 228 Translation differences 0 3 - 4 0 0 7 Business acquisitions - - –5 - - - –5 Changes in allocations - - - 1 - −3 −2 Decreases −10 - - - - - −10 Acquisition cost at end of year 1 65 1 127 16 8 218
Accumulated amortization at beginning of year −3 −22 −5 −23 - −1 −54 Translation differences 0 0 - −2 - 0 −2 Decreases 10 - - - - - 10 Amortization charges for the year −8 −8 −1 −13 - −3 −33 Accumulated amortization at end of year −1 −30 −6 −38 - −4 −79
Net book value at end of year 0 35 –5 89 16 4 139
Other intangible assets with indefinite useful life, i.e. brands, amounted promoting the products. They are subject to annual impairment test to EUR 16 million for the years ended December 31, 2009 and 2010, concurrently with that of the goodwill. respectively. They relate to Mining and Construction Technology as well For the year ended December 31, 2010 the amortization expense as Energy and Environmental Technology segments, and have been related to the intangible assets recognized through business acquisi- recognized in connection with business acquisitions. As no economic tions was EUR 33 million. The future amortization expense is expected useful life can be determined for these brands, the management has to amount to EUR 23, EUR 19, EUR 17, EUR 14 and EUR 12 million for the assessed them to have indefinite useful lives based on their continuous years 2011, 2012, 2013, 2014 and 2015, respectively. competitive advantage to the business. The brands are actively used in
Assets leased under financial lease arrangements are included in property, plant and equipment as follows: Machinery Property, plant Capitalization of interest expenses Buildings and and and equip- EUR million structures equipment ment total EUR million 2009 2010 2009 Net capitalized interest at beginning of year 1 0 Acquisition cost at end of year 22 6 28 Capitalization of interest expenses 0 0 Accumulated depreciation at end of year –15 –5 –20 Amortization of capitalized interest expense −1 0 Net book value at end of year 7 1 8 Net capitalized interest at end of year 0 0
2010 Acquisition cost at end of year 13 6 19 Accumulated depreciation at end of year −12 −5 −17 Net book value at end of year 1 1 2
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Goodwill and impairment tests by Metso’s management and the Board of Directors. In addition to the In the year ended December 31, 2010, the total amount of goodwill was projection period, the discounted cash flows include an additional year, EUR 880 million equal to 42% of the equity. As at December 31, 2009, which is extrapolated from the performance of the projection period the goodwill amounted to EUR 863 million being equal to 48% of the adjusted for cyclicality of each cash generating unit. The growth rate equity. reflecting the long-term average growth rate of businesses subject to The goodwill arising from business acquisitions is allocated as of the testing, was estimated to be 1.7% in 2009 and 2010. The forecasted sales acquisition date to cash generating units expected to benefit from the and production volumes are based on current structure and existing synergies of the combination, irrespective of whether other assets or property, plant and equipment used by each cash generating unit. The liabilities of the acquiree are assigned to those units. The goodwill from assumptions requiring most management judgment are the market acquisitions done in 2010 was allocated to Paper and Fiber Technology. and product mix. Values assigned to key assumptions reflect past The final goodwill of EUR 73 million arising from the Tamfelt acquisi- experience. Data on growth, demand and price development provided tion realized in 2009 was allocated in 2010 to the Fabrics business line by various research institutions are utilized in establishing the assump- (Tamfelt business) for EUR 33 millions and to Paper business line for EUR tions for the projection period. 40 millions to reflect latter’s expected synergy benefits and improve- The discount rates used in testing are derived from the weighted av- ment in profitability gained from the acquisition. Both business lines are erage cost of capital based on comparable peer industry betas, capital included in the Paper and Fiber Technology. structure and tax rates. The impact of the tax is eliminated to obtain If Metso reorganizes its reporting structure by changing the composi- pre-tax discount rates. tion of one or more cash generating units to which goodwill has been In the September 2010 annual test, the average EBITDAs (earnings be- allocated, the goodwill is reallocated to the units affected based on fore interest, tax, depreciation and amortization), of the tested units for their relative fair values, which correspond to the present values of the the projection period 2010–2014 were following: Mining and Construc- cash generating units’ cash flows at the time of the reorganization. tion Technology 16%, Energy and Environmental Technology 12% and Metso assesses the value of its goodwill for impairment annually or Paper and Fiber Technology 10% of net sales. more frequently, if facts and circumstances indicate a risk of impair- As a result of the annual impairment tests, no impairment losses ment. The assessment is done using fair value measurement tech- were recognized in 2009 and 2010. Since the unexpected weakening niques, such as the discounted cash flow methodology. The testing is of the market prospects in the last quarter of 2008 Metso has been performed on the cash generating unit level to which the goodwill has performing from time to time quarterly tests with updated cash flow been allocated. The recoverable amount of a cash generating unit is projections to ensure the carrying values of its cash generating units based on value-in-use calculations. In the discounted cash flow method, do not exceed the discounted present values obtained through tests. Metso discounts forecasted performance plans to their present value. The discount rates applied have been updated quarterly when material The performance plans, which include four years of projection, are changes in rates have been observed. These tests have not indicated calculated in the annual strategy process and subsequently approved need for impairment loss.
Summary of assumptions and impacts of change in assumptions to present values: Sensitivity tests Reduction of present values *) Derived weighted average Increase of discount rate by 200 bp, EUR million cost of capital applied Terminal growth rate 1.2% terminal growth rate 1.2% 2009 Mining and Construction Technology 12.0% 3% 17% Energy and Environmental Technology 11.4 – 12.6% 3% 17% Paper and Fiber Technology 10.5 – 11.5% 4% 19% Total 10.5 – 12.6% 3% 17%
2010 Mining and Construction Technology 10.7% 4% 21% Energy and Environmental Technology 10.1–10.4% 4% 21% Paper and Fiber Technology 9.7–10.7% 4% 20% Total 10.5–12.6% 4% 21%
*) Sensitivity numbers represent the weighted average impact to segments and the total represents the impact to the combined carrying goodwill of all segments.
The sensitivity to impairment of each cash generating unit is tested by the average minimum EBITDA required for break even would have applying a change both in the discount and terminal growth rate. The been 14.7% compared to 15.2% used in the cash flow projections. discount rate is increased by 200 basis points and the terminal growth Despite the results from the sensitivity tests, management believes rate is dropped from 1.7% to 1.2%. that no reasonably possible change of the key assumptions used would A reduced terminal growth rate did not indicate any impairment cause the carrying value of any cash generating unit to exceed its need whereas the combined effect of the two assumptions indicated recoverable amount. an impairment risk of the goodwill in the Fabrics business line by about From time to time the sensitivity tests include several cash projec- EUR 34 million. For this cash generating unit the break even point tions based on reasonable change in the future performance of a unit. where the discounted present value equaled the carrying value of However, the impact to the fair value obtained is limited as long as the net assets would have been reached with a discount rate of 10.5% there is no permanent weakening expected for the business, which terminal growth rate being 1.7% compared to a discount rate of 9.7% would affect the terminal value. These projections have not led to applied in the annual impairment test. Using this latter discount rate impairment.
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A summary of changes in Metso's goodwill by reporting segment is as follows:
Translation Balance at differences and Balance at As percent of EUR million beginning of year other changes Acquisitions end of year total goodwill 2009 Mining and Construction Technology 357 1 - 358 41% Energy and Environmental Technology 280 0 12 292 34% Paper and Fiber Technology 141 2 70 213 25% Total 778 3 82 863 100%
2010 Mining and Construction Technology 358 0 - 358 41% Energy and Environmental Technology 292 1 - 293 34% Paper and Fiber Technology 213 12 4 229 25% Total 863 13 4 880 100%
Apart from Mining and Construction Technology, which forms one amount of goodwill and was EUR 211 million at December 31, 2010. single cash generating unit, no other cash generating unit has a The remainder is evenly spread over the other cash generating units. significant amount of goodwill in comparison with the total amount Valmet Automotive carries no goodwill. The amount of other intangible of goodwill in Metso. The second biggest goodwill allocated to a cash assets with indefinite useful lives is insignificant. generating unit, Power business line, represented 24% of the total
14 Investments in associated companies
As at December 31, EUR million 2009 2010 The amounts representing Metso’s share of the assets and liabilities, Investments in associated companies and joint ventures net sales and results of the associated companies and joint ventures, Acquisition cost at beginning of year 3 3 which have been accounted for using the equity method are presented Translation differences 0 0 below: Increases - - Disposals and other decreases - 0 Year ended December 31, Acquisition cost at end of year 3 3 EUR million 2008 2009 2010 Assets 37 40 35 Equity adjustments in investments in associated companies Liabilities 22 27 21 and joint ventures Equity adjustments at beginning of year 11 10 Net sales 51 34 32 Share of results 0 1 Profit 3 0 1 Translation differences −1 1 Dividend income 0 0 Disposals and other changes - −1 Related party transactions Equity adjustments at end of year 10 11 The following transactions were carried out with associated companies Carrying value of investments in associated companies and joint ventures and the following balances have arisen from such and joint ventures at end of year 13 14 transactions:
As at December 31, Year ended December 31, 2009 2010 EUR million 2008 2009 2010 Owner- Carrying Owner- Carrying Net sales 2 1 1 EUR million ship value ship value Purchases 7 6 2 Allimand S.A. 35.8% 4 35.8% 4 Shanghai Neles-Jamesbury Valve Receivables 3 1 1 Co. Ltd 50.0% 7 50.0% 8 Payables 0 1 0 Others 2 2 Total investments in associated companies and joint ventures 13 14
Shanghai Neles-Jamesbury Valve Co. Ltd is classified as joint venture because Metso has, together with the other shareholder, joint power to govern the company.
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15 Available-for-sale equity investments
As at December 31, 2009 2010 Number of Carrying Number of Carrying EUR million (except for number of shares) shares Ownership value shares Ownership value Talvivaara Mining Company Plc. 1,392,330 0.6% 6 - - - Other shares and securities 9 9 Total available-for-sale equity investments 15 9
The available-for-sale equity investments have changed as follows:
EUR million 2009 2010 Carrying value at beginning of year 18 15 Additions 4 1 Changes in fair values 22 3 Disposals and other changes −29 −10 Carrying value at end of year 15 9
16 percentage of completion 17 inventory
Net sales recognized under the percentage of completion method As at December 31, amounted to EUR 1,733 million, or 35 percent of net sales, in 2009 and EUR million 2009 2010 EUR 2,024 million, or 37 percent of net sales, in 2010. The percentage Materials and supplies 286 250 was highest in the Paper and Fiber Technology segment, where it ac- Work in process 478 570 counted for 46 percent in 2009 and 51 percent in 2010. Finished products 408 485 Total inventory 1,172 1,305 Information on balance sheet items of uncompleted projects at December 31 is as follows: The cost of inventories recognized as expense was EUR 3,726 million Cost and and EUR 4,030 million for the years ended December 31, 2009 and 2010, earnings of respectively. uncompleted Billings of EUR million projects projects Net Provision for inventory obsolescence has changed as follows: 2009 Projects where cost and earnings exceed billings 1,721 1,409 312 EUR million 2009 2010 Projects where billings exceed Balance at beginning of year 67 94 cost and earnings 1,257 1,587 330 Impact of exchange rates 2 6 Additions charged to expense 29 21 2010 Increase from business acquisitions 6 0 Projects where cost and earnings Realized reserve −5 −5 exceed billings 2,019 1,732 287 Deductions / other additions −5 −12 Projects where billings exceed Balance at end of year 94 104 cost and earnings 1,152 1,451 299 For additional information on provisions, see also note 3.
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18 Change in net working capital
Change in net working capital, net of effect from business acquisitions and disposals: Year ended December 31, EUR million 2008 2009 2010 Increase (−) / decrease (+) in assets and increase (+) / decrease (−) in liabilities: Inventory −230 530 −44 Trade and other receivables 58 339 −265 Percentage of completion: recognized assets and liabilities, net −7 33 −17 Trade and other payables −258 −384 351 Total −437 518 25
Breakdown of business combinations is presented in note 10.
19 Interest bearing and non-interest bearing receivables
As at December 31, 2009 2010 EUR million Non-current Current Total Non-current Current Total Interest bearing receivables Loan receivables 8 1 9 5 2 7 Available-for-sale financial investments 130 79 209 169 178 347 Financial instruments held for trading 40 - 40 - 59 59 Trade receivables 1 7 8 1 4 5 Total 179 87 266 175 243 418
Non-interest bearing receivables Loan receivables - 0 0 - 1 1 Trade receivables 0 738 738 0 989 989 Prepaid expenses and accrued income - 78 78 - 93 93 Other receivables 44 122 166 42 159 201 Total 44 938 982 42 1,242 1,284
Metso actively manages its cash by investing in financial instruments with varying maturities. Instruments exceeding matu- rity of three months are classified as available-for-sale financial investments or financial instruments held for trading. As of December 31, 2009, other non-interest bearing receivables comprised EUR 84 million of various federal and state tax credits of Brazilian subsidiaries of which EUR 28 million of state tax credits were classified as long-term. As of December 31, 2010, the Brazilian tax credits amounted to EUR 58 million of which EUR 20 million of state tax credits were classified as long-term.
Provision for doubtful notes and receivables has changed as follows: Analysis of non-interest bearing trade receivables by age:
As at december 31, EUR million 2009 2010 EUR million 2009 2010 Balance at beginning of year 40 39 Trade receivables, not due at reporting date 529 702 Impact of exchange rates 1 3 Trade receivables 1 – 30 days overdue 121 133 Additions charged to expense 12 9 Trade receivables 31 – 60 days overdue 28 78 Increase from business acquisitions 0 0 Trade receivables 61 – 90 days overdue 22 16 Realized reserve −3 −3 Trade receivables 91 – 180 days overdue 13 28 Deductions / other additions −11 −6 Trade receivables more than 180 days overdue 25 32 Balance at end of year 39 42 Total 738 989
For additional information on provisions, see also note 3.
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20 financial assets and liabilities
Financial assets and liabilities divided by categories were as follows as of December 31:
Financial assets/ Financial liabilities at fair liabilities value through Available-for- measured at profit and loss and Loans and sale financial amortized Carrying EUR million derivatives receivables assets cost value Fair value 2009 Non-current assets Available-for-sale equity investments - - 15 - 15 15 Loan receivables - 8 - - 8 8 Available-for-sale financial investments - - 130 - 130 130 Financial instruments held for trading 40 - - - 40 40 Trade receivables - 1 - - 1 1 Derivative financial instruments ------Other receivables - 44 - - 44 44 Total 40 53 145 - 238 238
Current assets Loan receivables - 1 - - 1 1 Available-for-sale financial investments - - 79 - 79 79 Trade receivables - 745 - - 745 745 Derivative financial instruments 21 - - - 21 21 Other receivables - 200 - - 200 200 Total 21 946 79 - 1,046 1,046
Non-current liabilities Bonds - - - 865 865 948 Loans from financial institutions - - - 390 390 403 Pension loans - - - 50 50 50 Finance lease obligations - - - 5 5 5 Other long-term debt - - - 24 24 24 Derivative financial instruments 5 - - - 5 5 Other liabilities - - - 4 4 4 Total 5 - - 1,338 1,343 1,439
Current liabilities Current portion of long-term debt - - - 173 173 173 Loans from financial institutions - - - 52 52 52 Other short-term debt - - - 17 17 17 Trade payables - - - 605 605 605 Derivative financial instruments 21 - - - 21 21 Other liabilities - - - 460 460 460 Total 21 - - 1,307 1,328 1,328
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Financial assets/ Financial liabilities at fair liabilities value through Available-for- measured at profit and loss and Loans and sale financial amortized Carrying EUR million derivatives receivables assets cost value Fair value 2010 Non-current assets Available-for-sale equity investments - - 9 - 9 9 Loan receivables - 5 - - 5 5 Available-for-sale financial investments - - 169 - 169 169 Financial instruments held for trading ------Trade receivables - 1 - - 1 1 Derivative financial instruments 2 - - - 2 2 Other receivables - 42 - - 42 42 Total 2 48 178 - 228 228
Current assets Loan receivables - 3 - - 3 3 Available-for-sale financial investments - - 178 - 178 178 Financial instruments held for trading 59 - - - 59 59 Trade receivables - 993 - - 993 993 Derivative financial instruments 55 - - - 55 55 Other receivables - 252 - - 252 252 Total 114 1,248 178 - 1,540 1,540
Non-current liabilities Bonds - - - 578 578 649 Loans from financial institutions - - - 331 331 341 Pension loans - - - 26 26 26 Finance lease obligations - - - 0 0 0 Other long-term debt - - - 21 21 21 Derivative financial instruments 3 - - - 3 3 Other liabilities - - - 6 6 6 Total 3 - - 962 965 1,046
Current liabilities Current portion of long-term debt - - - 388 388 388 Loans from financial institutions - - - 29 29 29 Other short-term debt ------Trade payables - - - 815 815 815 Derivative financial instruments 30 - - - 30 30 Other liabilities - - - 562 562 562 Total 30 - - 1,794 1,824 1,824
For more information on derivative financial instruments, see note 31.
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21 cash and cash equivalents
As at December 31, EUR million 2009 2010 Bank and cash 226 313 Commercial papers and other investments 501 332 Total cash and cash equivalents 727 645
22 equity
Share capital and number of shares
Metso Corporation’s registered share capital, which is fully paid, was EUR 240,982,843.80 as at December 31, 2009 and 2010.
2009 2010 Number of outstanding shares, January 1 141,623,642 149,938,639 Share issue 8,593,642 - Redemption of own shares by the Parent Company −300,000 −300,000 Shares granted/returned from share ownership plans 21,355 −8,780 Number of outstanding shares, December 31 149,938,639 149,629,859 Own shares held by the Parent Company 409,617 718,397 Total number of shares, December 31 150,348,256 150,348,256
During 2010, Metso Corporation repurchased 300,000 of company’s Fair value and other reserves own shares to be used as a payment for possible rewards related to Hedge reserve includes the fair value movements of derivative financial Metso Share Ownership Plan 2010–2012. During the year Metso recov- instruments which qualify as cash flow hedges. ered 8,780 shares from share-based incentive plan participants having Fair value reserve includes the change in fair values of assets classi- terminated their employment. As of December 31, 2010, the acquisi- fied as available-for-sale. Share-based payments are presented in fair tion price of 718,397 own shares held by the Parent Company was EUR value reserve. 11,607,437 and was recognized in the treasury stock. Legal reserve consists of restricted equity, which has been transferred Metso completed on December 23, 2009 the share exchange offer from distributable funds under the Articles of Association, local com- for all issued and outstanding shares of Tamfelt Corporation and a pany act or by a decision of the shareholders. total of 8,593,642 new shares were subscribed. The share issue of EUR The share issue related to the acquisition of Tamfelt Corporation 206,075,535.16 was entered to trade register on December 28, 2009. has been recognized in the invested non-restricted equity fund of the Parent Company. Dividends Other reserves consist of the distributable fund and the invested Metso Corporation’s Board of Directors proposes to the Annual General non-restricted equity fund held by the Parent Company. Meeting to be held on March 30, 2011 that a dividend of EUR 1.55 per share be distributed for the year ended December 31, 2010. These finan- cial statements do not reflect this dividend payable of EUR 232 million.
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Changes in fair value and other reserves: Treasury Hedge Fair value Legal Other EUR million stock reserve reserve reserve reserves Total Balance as of December 31, 2007 −8 7 27 236 194 456
Cash flow hedges Fair value gains (+) / losses (−), net of taxes - −42 - - - −42 Transferred to profit and loss, net of taxes Net sales - 10 - - - 10 Cost of goods sold / Administrative expenses - −1 - - - −1 Available-for-sale equity investments Fair value gains (+) / losses (−), net of taxes - - −17 - - −17 Transferred to profit and loss, net of taxes - - −2 - - −2 Share-based payments, net of taxes 3 - 1 - - 4 Decrease and transfer of share premium and legal reserve - - - −215 292 77 Other 2 - - 3 - 5 Balance as of December 31, 2008 −3 −26 9 24 486 490
Cash flow hedges Fair value gains (+) / losses (−), net of taxes - −5 - - - −5 Transferred to profit and loss, net of taxes Net sales - 14 - - - 14 Cost of goods sold / Administrative expenses - 5 - - - 5 Available-for-sale equity investments Fair value gains (+) / losses (−), net of taxes - - 16 - - 16 Transferred to profit and loss, net of taxes - - −17 - - −17 Share issue - - - - 206 206 Redemption of own shares −2 - - - - −2 Share-based payments, net of taxes 0 - 1 - - 1 Other - - - 2 - 2 Balance as of December 31, 2009 −5 −12 9 26 692 710
Cash flow hedges Fair value gains (+) / losses (−), net of taxes - 10 - - - 10 Transferred to profit and loss, net of taxes Net sales - 11 - - - 11 Cost of goods sold / Administrative expenses - 3 - - - 3 Available-for-sale equity investments Fair value gains (+) / losses (−), net of taxes - - 2 - - 2 Transferred to profit and loss, net of taxes - - − 6 - - − 6 Redemption of own shares −7 - - - - −7 Share-based payments, net of taxes 0 - 0 - - 0 Other - - - 3 - 3 Balance as of December 31, 2010 −12 12 5 29 692 726
Foreign currency translation included in the shareholders’ equity:
EUR million 2008 2009 2010 Cumulative translation adjustment as of January 1 −76 −136 −62 Currency translation on subsidiary net investments −49 74 121 Hedging of net investment denominated in foreign currency −15 0 −17 Tax effect 4 0 4 Cumulative translation adjustment as of December 31 −136 −62 46
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23 Share-based payments
Share ownership plan 2006 – 2008 settled portion is dedicated to cover taxes and tax-related payments. The The Board of Directors of Metso decided in December 2005 upon a maximum share reward is capped to each participant’s taxable annual share ownership plan for the 2006–2008 strategy period. The share basic salary, excluding performance bonuses and share-based payments, ownership plan was part of the remuneration and commitment multiplied by 1.5. program of the management and covered a maximum of 360,000 own The equity-settled portion of the plan is recognized over the vesting shares. The share ownership plan covered three earnings periods i.e. period i.e. from the beginning of 2009 until the end of April 2012 based calendar years 2006, 2007 and 2008. The incentives consisted of both on calculated fair value of the Metso share as of the grant date of EUR shares and cash. The cash-settled portion was dedicated to cover taxes 8.64. The historical development of the Metso share and the expected and tax-related payments of the beneficiaries. The main earnings trig- dividends have been taken into account when calculating the fair value. gers were the operating profit targets and four years of service subse- quent to grant date. The operating profit targets and potential personal Share ownership plan for the years 2010 – 2012 earnings triggers were set separately for each year. (SOP 2010 – 2012) A maximum share price was determined annually for the share The Board of Directors of Metso Corporation approved in October 2009 ownership plan. a new, share-based incentive plan for Metso’s management for the years 2010–2012. The plan includes one three-year earnings period. Participa- Share ownership plan during earnings period 2006 tion in the plan required a personal investment in Metso shares at the The equity-settled portion for the earnings period 2006 was recognized beginning of the earnings period. 91 key persons are participating in the over the vesting period i.e. from 2006 until March 2010 based on the plan and their initial investment was 50,300 Metso shares, which must be average share price on the grant dates of EUR 29.71. The final amount held until the end of the earnings period. The rewards to be paid from of the granted shares was based on the average share price during the plan correspond to a maximum of 339,350 shares. Earnings criteria are the first two full weeks of March 2007. If the share price exceeded the based on Metso’s Total Shareholder Return (TSR) during three years’ time maximum, the number of shares awarded would have been reduced and on earnings per share in the years 2010–2012. The reward will be paid by a corresponding ratio. The maximum share price determined for the in Metso shares and partly in cash. The cash-settled portion is dedicated plan was EUR 38. The average price for the Metso share was EUR 37.66 to cover taxes and tax-related payments. The maximum share reward is during the first two full weeks of March 2007. capped to each participant’s taxable annual basic salary, excluding per- formance bonuses and share-based payments, multiplied by 1.5. Share ownership plan during earnings period 2007 The equity-settled portion of the plan is recognized over the vesting The equity-settled portion for the earnings period 2007 is recognized period i.e. from the beginning of 2010 until the end of April 2013 based over the vesting period i.e. from 2007 until March 2011 based on the on calculated fair value of the Metso share as of the grant date of EUR average share price on the grant dates of EUR 39.94. The final amount 22.63. The historical development of the Metso share and the expected of the granted shares was based on the average share price during dividends have been taken into account when calculating the fair value. the first two full weeks of March 2008. If the share price exceeded the maximum, the number of shares awarded would have been reduced Share ownership plan for the years 2011 – 2013 by a corresponding ratio. The maximum share price determined for the (SOP 2011 – 2013) plan was EUR 48. The average price for the Metso share was EUR 31.49 In September 2010 the Board of Directors of Metso Corporation approved during the first two full weeks of March 2008. a similar new, share-based incentive plan for Metso’s management for the years 2011–2013. The plan includes one three-year earnings period, which Share ownership plan during earnings period 2008 started on January 1, 2011. At the end of 2010, 74 people had confirmed The equity-settled portion for the earnings period 2008 is recognized their participation in the plan. The participants committed to invest in over the vesting period i.e. from 2008 until March 2012 based on the 36,815 Metso shares. The rewards to be paid from the plan correspond average share price on the grant dates of EUR 32.36. The final amount to a maximum of 251,698 shares. Earnings criteria of the plan are based of the granted shares was based on the share price on the payment on Metso’s Total Shareholder Return (TSR) during three years’ time and date of the reward. The maximum reward under the plan was limited on earnings per share in the years 2011–2013. The reward will be paid in to each participant’s annual salary, calculated by multiplying 12.5 times Metso shares and partly in cash. The cash-settled portion is dedicated the participant’s taxable monthly base salary payable in the month to cover taxes and tax-related payments. The maximum share reward is when the shares were received. The price for Metso share was EUR 8.93 capped to each participant’s taxable annual basic salary, excluding per- on the payment date of the reward. formance bonuses and share-based payments, multiplied by 1.5. The equity-settled portion of the plan is recognized over the vesting Share ownership plan for the years 2009 – 2011 period from the beginning of 2011. (SOP 2009 – 2011) The Board of Directors of Metso Corporation approved in October 2008 Costs recognized for the share ownership plans a new, share-based incentive plan for Metso’s management for the The compensation expense for the shares, which is accounted for as years 2009–2011. The plan includes one three-year earnings period. Par- equity-settled, is recognized as an employee benefit expense with cor- ticipation in the plan required a personal investment in Metso shares at responding entry in equity. The cost of the equity-settled portion, which the beginning of the earnings period. 88 key persons are participating will be evenly recognized during the required service period, is based on in the plan and their initial investment was 54,850 Metso shares, which the market price of the Metso share on the grant date. The compensa- must be held until the end of the earnings period. The rewards to be tion expense resulting from the cash-settled portion is recognized as paid from the plan correspond to a maximum of 369,925 shares. Earn- an employee benefit expense with a corresponding entry in short-term ings criteria are based on Metso’s Total Shareholder Return (TSR) during liabilities. The cash-settled portion is fair valued at each balance sheet three years’ time and on earnings per share in the years 2009–2011. date based on the prevailing share price and accrued until the settlement The reward will be paid in Metso shares and partly in cash. The cash- date.
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Beneficiaries and granted shares of the share ownership plan as at December 31, 2010:
Metso Executive Other Beneficiaries Team Shares beneficiaries Shares total Shares total Plan 2006 Granted 7 25,815 53 74,146 60 99,961 Returned during 2007 −4 −6,500 −4 −6,500 Returned during 2008 −4 −4,500 −4 −4,500 Returned during 2009 −4 −7,508 −4 −7,508 Returned during 2010 −1 −2,050 −1 −2,050 At end of year 7 25,815 40 53,588 47 79,403
Plan 2007 Granted 7 15,763 83 55,186 90 70,949 Returned during 2008 −4 −990 −4 −990 Returned during 2009 −4 −5,402 −4 −5,402 Returned during 2010 −3 −4,273 −3 −4,273 At end of year 7 15,763 72 44,521 79 60,284
Plan 2008 Granted 6 6,996 95 27,269 101 34,265 Returned during 2009 −1 - −1 - Returned during 2010 −3 −2,457 −3 −2,457 At end of year 6 6,996 91 24,812 97 31,808
Total at the end of year 48,574 122,921 171,495
Costs recognized for the share ownership plan:
EUR thousand Plan 2006 Plan 2007 Plan 2008 SOP 2009–2011 SOP 2010–2012 Total
2006 Metso Executive Team −1,365 - - - - −1,365 Other beneficiaries −3,466 - - - - −3,466 Total −4,831 - - - - −4,831
2007 Metso Executive Team −187 −685 - - - −872 Other beneficiaries −182 −2,059 - - - −2,241 Total −369 −2,744 - - - −3,113
2008 Metso Executive Team −161 −258 −128 - - −547 Other beneficiaries −406 −575 −300 - - −1,281 Total −567 −833 −428 - - −1,828
2009 Metso Executive Team −161 −143 −82 −184 - −570 Other beneficiaries −229 −312 −294 −754 - −1,589 Total −390 −455 −376 −938 - −2,159
2010 Metso Executive Team −38 −135 −63 −419 −1,122 −1,777 Other beneficiaries −70 −347 −140 −2,103 −2,011 −4,671 Total −108 −482 −203 −2,522 −3,133 −6,448
Total −6,265 −4,514 −1,007 −3,460 −3,133 −18,379
As of balance sheet date, a liability of EUR 2,900 thousand was recognized as an accrued expense from the cash-settled portion of Metso Share Ownership Plan, SOP 2009–2011 and EUR 2,101 thousand from Metso Share Ownership Plan, SOP 2010–2012.
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24 Long-term debt
As at December 31, Carrying values Fair values EUR million 2009 2010 2009 2010 Bonds 984 868 1,067 931 Loans from financial institutions 425 415 438 425 Pension loans 64 36 64 36 Finance lease obligations 8 2 8 2 Other long-term debt 26 23 26 23 1,507 1,344 1,603 1,417 Less current maturities 173 388 173 388 Total 1,334 956 1,430 1,029
The fair values of long-term debt are equal to the present value of their future cash flows.
Outstanding Bonds: carrying value Nominal Effective at December 31, interest rate interest rate Original EUR million Dec. 31, 2010 Dec. 31, 2010 loan amount 2009 2010 Public bond 2004 – 2011 5.125% 6.46% 274 238 222 Public bond 2009 – 2014 7.250% 7.40% 3001) 199 199 Private placements maturing 2011– 2018 2.0– 7.1% 450 547 447 Bonds total 984 868 Less current maturities 119 290 Bonds, long-term portion 865 578
1) Out of this EUR 300 million total Metso Capital Ltd – 100% owned subsidiary of Metso – has subscribed EUR 100 million for potential resale.
Metso has a Euro Medium Term Note Program (EMTN) of EUR 1.5 billion, denominated. The interest rates vary from 0.9% to 10.9%. The loans are under which EUR 984 million and EUR 868 million at carrying value payable from year 2011 to 2018. were outstanding at the end of 2009 and 2010, respectively. EUR 421 Interest rates of pension loans and finance lease obligations vary million of the outstanding amount were public bonds and EUR 447 mil- from 3.0% to 5.0%. lion private placements. Metso’s five-year revolving loan facility of EUR 500 million was Loans from financial institutions consist of bank borrowings with renewed in 2010 and includes 14 banks. The facility was undrawn at the either fixed or variable interest rates. A major share of loans is EUR end of 2009 and 2010.
Contractual maturities of interest bearing debt as at December 31, 2010 are as follows:
Loans from Finance Other financial lease long-term EUR million Bonds institutions Pension loans obligations debt Total Repayments 290 84 10 2 2 388 Interests 52 13 1 0 0 66 Total 2011 342 97 11 2 2 454 Repayments 119 99 10 0 21 249 Interests 33 9 1 0 0 43 Total 2012 152 108 11 0 21 292 Repayments 94 78 10 0 0 182 Interests 30 6 0 0 0 36 Total 2013 124 84 10 0 0 218 Repayments 200 69 5 0 0 274 Interests 23 4 0 0 0 27 Total 2014 223 73 5 0 0 301 Repayments 0 56 0 0 0 56 Interests 8 2 0 0 0 10 Total 2015 8 58 0 0 0 66 Repayments 165 29 1 0 0 195 Interests 8 1 0 0 0 9 Later 173 30 1 0 0 204
The maturities of derivative financial instruments are presented in note 31.
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25 Provisions
As at December 31, 2009 2010 EUR million Non-current Current Total Non-current Current Total Warranty and guarantee liabilities 19 160 179 19 181 200 Accrued restructuring expenses 11 28 39 7 17 24 Environmental and product liabilities 0 12 12 - 5 5 Other provisions 22 35 57 33 27 60 Total 52 235 287 59 230 289
The provisions, both non-current and current, have changed as follows during the financial year 2010:
Accrued Environmental restructuring and product EUR million expenses liabilities Total Balance at beginning of year 39 12 51 Impact of exchange rates 3 0 3 Addition charged to expense 7 1 8 Realized reserve −20 −6 −26 Reversal of reserve / other changes −5 −2 −7 Balance at end of year 24 5 29
Provisions, for which the expected settlement date exceeds one year from the moment of their recognition, are discounted to their present value and adjusted in subsequent periods for the time effect.
Accrued restructuring expenses Warranty and guarantee provisions The costs included in a provision for restructuring are those costs that Metso issues various types of contractual product warranties under are either incremental and incurred as a direct result of the formal which it generally guarantees the performance levels agreed in the plan approved and committed by management, or are the result of a sales contract, the performance of products delivered during the continuing contractual obligation with no continuing economic benefit agreed warranty period and services rendered for a certain period or to Metso or a penalty incurred to cancel the contractual obligation. The term. The warranty liability is based on historical realized warranty provision also includes other costs incurred as a result of the plan, such costs for deliveries of standard products and services. The usual war- as environmental liabilities. ranty period is 12 months from the date of customer acceptance of the delivered equipment. For larger projects, the average warranty period Environmental and product liabilities is two years. For more complex contracts, including long-term projects, Metso accrues for losses associated with environmental remediation the warranty reserve is calculated contract by contract and updated obligations when such losses are probable and reasonably calculable. regularly to ensure its sufficiency. The amounts of accruals are adjusted later as further information devel- ops or circumstances change. As at December 31, 2010, environmental The provisions for warranty and guarantee liabilities have changed as liabilities amounted to EUR 2 million. They included clean-up costs for follows: soil and water contamination at various sites in the Unites States previ- ously operated by Mining and Construction Technology. EUR million 2009 2010 Metso is occasionally involved in product liability claims. As at Balance at beginning of year 178 179 December 31, 2010, provisions for product liabilities amounted to EUR Impact of exchange rates 6 11 3 million. Increase for current year's deliveries 75 82 Increase for previous years' deliveries 23 27 Increase from business acquisitions 2 0 Realized reserve −77 −71 Reversal of reserve / other changes −28 −28 Balance at end of year 179 200
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26 short-term debt 27 trade and other payables
As at December 31, As at December 31, EUR million 2009 2010 EUR million 2009 2010 Loans from financial institutions 52 29 Trade payables 605 815 Finnish commercial paper financing 17 - Accrued interests 23 19 Total 69 29 Accrued personnel costs 172 207 Accrued project costs 89 89 Other 176 247 The weighted average interest rate applicable to short-term borrowing Total 1,065 1,377 at December 31, 2009 and 2010 was 5.8% and 6.7%, respectively. In 2011, interest amounting to EUR 0.5 million is expected to be paid concur- rently with respective principals on the short-term debt presented The maturities of payables rarely exceed six months. The maturities above. of trade payables are largely determined by local trade practices and Metso has established a Finnish commercial paper program amount- individual agreements between Metso and its supplier. ing to EUR 500 million. Finnish commercial papers worth EUR 17 million Accrued project costs may be settled after six months depending were outstanding as of December 31, 2009 and none as of December on the issuance of the supplier invoice when the costs arise from work 31, 2010. performed by third parties. The accrued personnel costs, which include holiday pay, are settled in accordance with local laws and stipulations.
28 post-employment benefit obligations
The companies within Metso have various pension schemes pursuant actuarial calculations. Metso uses December 31 as measurement date to local conditions and practices of the countries in which they operate. for its defined benefit arrangements. The discount rates applied are Some of these programs are defined benefit schemes with retirement, based on yields available on high quality (“AA” rated) corporate bonds. healthcare, death, jubilee and termination income benefits. The ben- If such reference is not available, the rates are based on government efits are generally a function of years of employment and salary with bond yields as of the balance sheet date. The terms of corporate and Metso. The schemes are mostly funded through payments to insurance government bonds are consistent with the currency and the estimated companies or to trustee-administered funds as determined by periodic term of the pension obligations.
The amounts recognized as of December 31 in the balance sheet were following: Other Pension benefits, Pension benefits, post-employment Finnish foreign benefits Total Total EUR million 2009 2010 2009 2010 2009 2010 2009 2010 Present value of funded obligations 16 21 292 337 - - 308 358 Fair value of plan assets −12 −15 −248 −300 - - −260 −315 4 6 44 37 - - 48 43 Present value of unfunded obligations - - 104 102 36 45 140 147 Unrecognized asset - - 1 2 - - 1 2 Unrecognized past service cost 0 1 - - 1 1 1 2 Net liability recognized 4 7 149 141 37 46 190 194
Amounts in the balance sheet: Liabilities 4 7 149 142 37 46 190 195 Assets - - 0 −1 - - 0 −1 Net liability recognized 4 7 149 141 37 46 190 194
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Movements in the net liability recognized in the balance sheet were as follows: Foreign pension and other Pension benefits, Finnish post-employment benefits EUR million 2009 2010 2009 2010 Net liability at beginning of year 4 4 186 186 Acquisitions (+) and disposals (−) - - 1 0 Net expense recognized in the income statement 1 2 15 13 Employer contributions −1 −3 −20 −38 Gain (+) / loss (−) recognized through OCI 0 4 0 11 Translation differences - - 4 15 Net liability at end of year 4 7 186 187
The amounts recognized in the income statement were as follows: Year ended December 31, Other Pension benefits, Finnish Pension benefits, foreign post-employment benefits EUR million 2008 2009 2010 2008 2009 2010 2008 2009 2010 Service cost 1 1 2 5 7 8 1 1 1 Interes cost 0 1 1 19 20 21 2 2 2 Expected return on plan assets 0 −1 −1 −16 −15 −19 - - - Amortization - Past service cost 2 0 0 - 0 0 - 0 0 Gains (−) / losses (+) on immediate settlements −1 0 0 0 0 0 - 0 0 Expense (+) / income (−) recognized in income statement 2 1 2 8 12 10 3 3 3
Actual return (+) / loss (−) on plan assets 1 3 1 −26 32 24 - - -
The amounts recognized through OCI were following: Year ended December 31, Other Pension benefits, Pension benefits, post-employment Finnish foreign benefits Total Total EUR million 2009 2010 2009 2010 2009 2010 2009 2010 Experience gain (−) / loss (+) on assets −2 0 −17 −5 - - −19 −5 Actuarial gain (−) / loss (+) on liabilities due to change in assumptions 0 3 17 15 2 3 19 21 Actuarial gain (−) / loss (+) on liabilities due to experience 2 1 2 −4 −2 2 2 −1 Gain (−) / loss (+) as result of asset ceiling - - −2 0 - - −2 0 Total gain (−) / loss (+) recognized through OCI 0 4 0 6 0 5 0 15
The cumulative amount of actuarial gains and losses recognized through OCI amounted to net loss of EUR 66 million, EUR 66 million and EUR 81 million for the years ended December 31, 2008, 2009 and 2010, respectively. The accumulated amount does not include translation differences of previous years. In certain countries, companies are liable to pay a specific payroll tax on employee benefits, including on defined benefits. To the extent the changes in the benefit obligation arise from actuarial gains and losses, the related payroll tax is also recognized in the Statement of Other Comprehensive Income. For the years ended December 31, 2009 and 2010 the amount of payroll tax recognized through OCI was a a gain of less than EUR 0.5 million and a loss of less than EUR 0.1 million, respectively.
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The changes in the value of the defined benefit obligation were as follows: Other Pension benefits, Pension benefits, post-employment Finnish foreign benefits Total Total EUR million 2009 2010 2009 2010 2009 2010 2009 2010 Defined benefit obligation at beginning of year 11 15 348 396 36 37 395 448 Service cost 1 2 7 8 1 1 9 11 Interest cost 1 1 20 21 2 2 23 24 Plan participant contributions - - 1 1 0 0 1 1 Past service cost (+) / credit (−) - - 0 0 0 0 0 0 Acquisitions (+) and disposals (−) - - 0 1 - - 0 1 Adjustment to coverage - - 12 - 0 0 12 - Actuarial gain (−) / loss (+) due to change in assumptions 0 3 17 15 2 3 19 21 Actuarial gain (−) / loss (+) due to experience 2 1 2 −4 −2 2 2 −1 Settlements 0 −1 −2 −10 - - −2 −11 Translation differences - - 12 33 0 3 12 36 Benefits paid - - −21 −22 −2 −3 −23 −25 Defined benefit obligation at end of year 15 21 396 439 37 45 448 505
The changes in the fair value of the plan assets during the year were as follows: Foreign pension and other Pension benefits, Finnish post-employment benefits Total Total EUR million 2009 2010 2009 2010 2009 2010 Fair value of assets at beginning of year 8 12 202 248 210 260 Adjustments for new plans covered - - 11 - 11 - Settlements 0 −1 −2 −9 −2 −10 Acquisitions - - - 1 - 1 Actual return on plan assets 3 1 32 24 35 25 Plan participant contributions - - 1 1 1 1 Employer contributions 1 3 20 38 21 41 Benefits paid - - −24 −25 −24 −25 Translation differences - - 8 22 8 22 Fair value of assets at end of year 12 15 248 300 260 315
The major categories of plan assets as a percentage of total plan assets as at December 31 were as follows: 2009 2010 Equity securities 38% 41% Bonds 41% 39% Other 21% 20%
The expected return on plan assets is set by reference to historical re- turns on each of the main asset classes, current market indicators such as long-term bond yields and the expected long-term strategic asset allocation of each plan.
Summarized information on pension liabilities and plan assets for the five periods is as follows:
EUR million 2006 2007 2008 2009 2010 Present value of defined benefit obligations at December 31 431 424 395 448 505 Fair value of plan assets at December 31 246 250 210 260 315 Deficit 185 174 185 188 190 Unrecognized asset 2 2 4 1 2 Unrecognized past service cost 2 1 1 1 2
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The principal actuarial assumptions at December 31 (expressed as weighted averages):
Finnish Foreign 2009 2010 2009 2010 Benefit obligation: discount rate 5.00% 4.75% 5.67% 5.38% Benefit obligation: rate of compensation increase 4.41% 4.44% 3.61% 3.66% Benefit obligation: rate of pension increase 2.10% 2.10% 1.55% 1.52% Expense in income statement: discount rate 5.50% 5.00% 5.98% 5.67% Expense in income statement: rate of compensation increase 4.75% 4.41% 3.66% 3.61% Expense in income statement: expected return on plan assets 5.92% 5.37% 7.70% 7.47% Expense in income statement: rate of pension increase 2.10% 2.10% 1.54% 1.55%
The expected contributions in 2011 shall amount to EUR 1 million to Finnish plans and EUR 9 million to foreign plans. The expected benefits to be paid in 2011 shall amount to EUR 23 million.
The life expectancy of the participants is based on regularly updated An increase of one percentage point in the assumed health care cost mortality tables, which reflect the life expectancy of the local popula- trend would increase the accumulated post-employment benefit obli- tion. The mortality tables used for the major defined benefit plans are gation by EUR 4 million at December 31, 2010. It would increase the sum following: of the service and interest cost by EUR 0.3 million for 2010. A decrease of one percentage point in the assumed health care cost trend would Finland Gompertz’ model with Finnish TyEL parameters decrease the accumulated post-employment benefit obligation by EUR Germany Heubeck RT 2005 G 3 million at December 31, 2010. It would not decrease the sum of the United Kingdom PXA92 year of birth service and interest cost for 2010. The health care cost trend is assumed Canada UP94 projected to 2010/2015 to fall to 5% over the next four years by 0.75 percentage points per an- United States of America RP2000 projected to 2015 num for members over age 65 and to 5% over the next six years by 0.5 percentage points per annum for members under age 65.
29 mortgages and contingent liabilities
As at December 31, The mortgages given as security for own commitments relate to EUR million 2009 2010 industrial real estate and other company assets. The mortgage amount On own behalf on corporate debt has been calculated as the amount of corresponding Mortgages 22 4 loans. The nominal value of the mortgages at December 31, 2010 was Pledged assets 0 - EUR 1 million higher than the amount of the corresponding loans. On behalf of associated companies The repurchase commitments represent engagements whereby Guarantees - - Metso agrees to purchase back equipment sold to customer. The On behalf of others conditions triggering the buy back obligation are specific to each sales Guarantees 7 4 contract. The amounts in the above table comprise the agreed value in Other commitments full of each repurchase commitment. Repurchase commitments 3 3 Metso Corporation has guaranteed obligations arising in the ordinary Other contingencies 3 2 course of business of many of its subsidiaries up to a maximum of EUR Total 35 13 1,211 million and EUR 1,344 million as of December 31, 2009 and 2010, respectively.
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30 lease contracts
Metso leases offices, manufacturing and warehouse space under vari- Net present value of annual rentals for finance leases in effect at ous noncancellable leases. Certain contracts contain renewal options December 31 are shown in the table below: for various periods of time.
Minimum annual rental expenses for leases in effect at December 31 are EUR million 2009 2010 shown in the table below: Not later than 1 year 3 2 Later than 1 year and not later than 2 years 2 1 Operating leases Finance leases Later than 2 years and not later than 3 years 1 0 EUR million 2009 2010 2009 2010 Later than 3 years and not later than 4 years 1 0 Not later than 1 year 46 54 3 2 Later than 4 year and not later than 5 years 0 0 Later than 1 year and not later than 2 years 37 39 2 1 Later than 5 years 1 0 Later than 2 years and not later than 3 years 25 34 1 0 Total net present value of finance leases 8 3 Later than 3 years and not later than 4 years 22 25 1 0 Later than 4 year and not later than 5 years 17 20 1 0 Total rental expenses amounted to EUR 40 million, EUR 42 million and Later than 5 years 79 70 2 0 EUR 43 million in the years ended December 31, 2008, 2009 and 2010, Total minimum lease payments 226 242 10 3 respectively. Annual repayments of principal are presented in the Future financial expenses −2 0 maturities of long-term debt, see note 24. Total net present value of finance leases 8 3
31 Derivative financial instruments
Notional amounts and fair values of derivative financial instruments as at December 31 were as follows:
Notional Fair value, Fair value, Fair value, EUR million amount assets liabilities net 2009 Forward exchange contracts 1) 1,390 21 18 3 Interest rate swaps 128 0 5 −5 Option agreements Bought 13 0 0 0 Sold 6 - 0 0 Electricity forward contracts 2) 640 0 3 −3 Nickel swap contracts 3) 252 0 0 0 Total 21 26 −5
2010 Forward exchange contracts 1) 2,137 49 30 19 Interest rate swaps 163 0 3 −3 Option agreements Bought 2 0 - 0 Sold 10 - 0 0 Electricity forward contracts 2) 755 7 0 7 Nickel swap contracts 3) 486 1 0 1 Total 57 33 24
1) Some 43 percent and 52 percent of the notional amount at the end of 2009 and 2010, respectively, qualified for cash flow hedge accounting. 2) Notional amount GWh 3) Notional amount tons
The notional amounts indicate the volumes in the use of derivatives, but do not indicate the exposure to risk.
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Derivative financial instruments recognized in balance sheet as at December 31 are presented below: 2009 2010 EUR million Assets Liabilities Assets Liabilities Interest rate swaps - cash flow hedges 0 4 - 1 Interest rate swaps - non-qualifying hedges 0 1 0 2 0 5 0 3
Forward exchange contracts - cash flow hedges 7 10 32 19 Forward exchange contracts - non-qualifying hedges 14 8 17 11 21 18 49 30
Electricity forward contracts - cash flow hedges 0 3 7 0 Nickel swaps - non-qualifying hedges 0 0 1 0 Options - non-qualifying hedges 0 0 0 0 Total derivatives 21 26 57 33
In the years ended December 31, 2009 and 2010, respectively, there was no material ineffectiveness related to the cash flow hedges, which would have resulted in an immediate recognition of an ineffective portion in the income statement.
As at December 31, 2010, the fixed interest rates of swaps varied from 1.2 percent to 6.1 percent.
As at December 31, 2010, the maturities of financial derivatives are the following (expressed as notional amounts):
EUR million 2011 2012 2013 2014 2015 and later Forward exchange contracts 1,900 207 30 - - Interest rate swaps 88 20 - - 55 Option agreements 10 2 - - - Electricity forward contracts 1) 304 217 145 70 18 Nickel swap contracts 2) 432 54 - - - 1) Notional amount GWh 2) Notional amount tons
32 group companies
Finland Metso Paper Karlstad AB France Metso Minerals Oy Metso Paper Sundsvall AB Metso SAS Metso Minerals (Finland) Oy Metso Fiber Karlstad AB Metso Minerals (France) SA EC Technology Oy Metso Mill Service AB Metso Minerals (Cisa) SA Metso Power Oy Metso Mill Service Husum AB Metso Automation SAS MW Power Oy Städet 2 Holding AB Metso Paper France SAS MW Biopower Oy Städet 2 i Karlstad AB Metso Paper Paris SA Novikat Oy Norway Germany Metso Automation Oy Metso Minerals (Norway) A/S Metso Minerals Holding (Germany) GmbH Metso Endress+Hauser Oy Metso Automation A/S Metso Minerals (Germany) GmbH Metso Paper Oy Metso Mill Service A/S Metso Automation GmbH Metso Fabrics Oy Denmark Metso Automation Mapag GmbH Metso Foundries Jyväskylä Oy Metso Automation Denmark A/S Metso Lindemann GmbH Metso Mill Service Automation Oy Metso Denmark A/S Metso Deutschland GmbH Metso Mill Service Kauttua Oy Austria Metso Paper GmbH Tampereen Verkatehdas Oy Metso Minerals (Austria) GmbH Metso Mill Service Plattling GmbH Valmet Automotive Oy Metso Automation GesmbH Metso Panelboard GmbH Metso Capital Oy Metso Paper GesmbH Valmet Automotive GmbH Metso Shared Services Oy Belgium Great Britain Kaukotalo Oy Metso Minerals (Belux) SA Metso Minerals (UK) Ltd Avantone Oy Metso Automation SA NV Metso Minerals (Cappagh) Ltd Rauma Oy Metso Belgium NV Metso Automation Ltd Sweden Czech Republic Metso Paper Ltd Metso Svenska AB Metso Minerals s.r.o. Metso Captive Insurance Limited Metso Minerals (Sweden) AB Nordberg s.r.o. (Czech) Italy Metso Power AB Metso Automation s.r.o. Metso SpA MW Power AB Metso Paper CR s.r.o. Metso Minerals (Italy) SpA Lignoboost AB Metso Paper Steti s.r.o. Metso Automation SpA Metso Automation AB Metso Paper Como Srl Metso Paper Italy SpA
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Netherlands Brazil Japan Metso Minerals International BV Metso Brazil Indústria e Comércio Ltda Metso Minerals Japan Co. Ltd Metso Minerals (Dordrecht) BV Metso Automation do Brasil Ltda Metso Automation KK Metso Automation BV Metso Paper Sulamericana Ltda Metso Paper Japan Co. Ltd Poland Metso Paper South America Ltda Singapore Metso Minerals (Poland) Sp zoo Metso Fabrics Brasil Tecidos Técnicos Ltda Metso Minerals (Asia-Pacific) Pte Ltd Metso Automation Polska Sp zoo Valmet Automation Ltda Metso Minerals (Singapore) Pte Ltd Tamfelt Sp zoo Chile Metso Automation Pte Ltd Valmet Automotive Poland Sp zoo Metso Minerals (Chile) SA Metso Paper (Asia-Pacific) Pte Ltd Portugal Metso Automation Chile Ltda Thailand Metso Minerals (Portugal) Lda Metso Paper Asesorias Tecnicas SA Metso Minerals (Thailand) Co. Ltd Metso Automation Portugal Lda Metso Paper SA Metso Automation Co. Ltd Tamfelt Technical Textiles Lda Mexico Metso Paper (Thailand) Co. Ltd Spain Metso (Mexico) SA de CV South Africa Metso Minerals Espana SA Metso SA de CV Metso Minerals Investment Holdings (SA) (Pty) Ltd Metso Automation Espana SA Australia Metso Minerals (South Africa) Pty Ltd Metso Paper SA Metso Minerals (Australia) Ltd Metso Minerals Properties (SA) (Pty) Ltd Metso Mill Service SL Metso Automation (ANZ) Pty Ltd Metso Automation RSA (Pty) Ltd Russia Metso Paper (ANZ) Pty Ltd Metso Paper South Africa (Pty) Ltd ZAO Metso Minerals (CIS) China Metso ND Engineering (Pty) Ltd ZAO Metso Automation Metso Minerals (Tianjin) Co. Ltd Others Metso Paper ZAO Metso Minerals (Tianjin) International Trade Co. Ltd Noviter Eesti Turkey Metso Automation (Shanghai) Co. Ltd Metso Minerals (Switzerland) AG Metso Minerals Dis Ticaret Limeted Sirketi Metso Paper (China) Co. Ltd Metso (Kazakhstan) LLP Metso Automation Otomasyon San. Ve Tic Ltd Sti Metso Paper (Guangzhou) Co. Ltd Metso Minerals (Ukraine) LLC USA Metso Paper (Shanghai) Co. Ltd Metso Peru SA Metso USA Inc. Metso Paper Technology (Shanghai) Co. Ltd Metso Minerals (Argentina) SA Metso Minerals Industries Inc. Valmet-Xian Paper Machinery Co. Ltd Metso Minerals (Hong Kong) Ltd Svedala Project Services Inc. Metso Fabrics (Tianjin) Co. Ltd Metso Paper Korea Inc. Neles-Jamesbury Inc. Tamfelt - GMCC (Tianjin) Paper Machine Clothing Co. Ltd Metso Automation Korea Ltd Metso Automation USA Inc. Metso Fabrics (Shanghai) Co. Ltd Metso Minerals (Malaysia) Sdn Bhd Jamesbury Shanghai Valve (USA) Inc. Metso (Shanghai) Surface Treatment Co. Ltd Metso New Zealand Ltd Metso Paper USA Inc. Metso (China) Investment Co. Ltd Metso Minerals (Philippines) Inc. Metso Fabrics USA Inc. India Svedala (Philippines) Inc. Metso Fabrics PMC USA LLC Metso Minerals (India) Private Ltd Metso Vietnam Co. Ltd Metso Wyesco Service Center Inc. Metso Minerals (Mumbai) Private Ltd Metso Minerals Algeria Valmet Automotive USA Inc. Metso Automation India Private Ltd Metso Minerals (Ghana) Ltd Canada Metso Power India Private Ltd Metso Minerals (Lebanon) sarl Metso Minerals Canada Inc. Metso Paper India Private Ltd Metso Minerals (Zambia) Ltd Metso Automation Canada Ltd Indonesia Metso Minerals (Zimbabwe) PVT Ltd Metso Paper Ltd PT Metso Minerals Indonesia Ltda Nordberg Manufacturing (Pty) Tamfelt PMC, Canada Inc. PT Metso Automation Nordberg Namibia (Pty) Metso Canada Ltd PT Metso Paper Indonesia Metso Automation FZE (Dubai) Metso Shared Services Ltd
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33 Reporting segment and geographic information
Corporate structure Transfer pricing in intra-Metso transactions is primarily based on mar- Metso Group is a global supplier of sustainable technology and ser- ket prices. In some cases, cost-based prices are used, thereby including vices for mining, construction, power generation, automation, recycling the margin (cost plus method). and the pulp and paper industries. The financial performance of the segments is measured through their The Board of Directors has been identified as Metso’s chief operat- ability to generate operating profit and earnings before interest, tax ing decision maker that decides on the strategy, the selection of key and amortization (EBITA) both in absolute figures and as percentage employees, major development projects, business acquisitions, invest- of net sales. Since 2010, the performance is also measured based on ments, organization and finance. The operating segments in Metso are EBITA before non-recurring items, the previous years are presented in determined based on the reports that are delivered to the Board of accordance. The effect the non-recurring items have on cost of goods Directors and that are used to make strategic decisions. The primary sold, selling, general and administrative expenses as well as other segment reporting format is based on the business segments, and income and expenses, net, is presented in the segment information. secondary on geographical areas. Financial income and expenses, net, and income taxes are not allocated The operations are organized into the following three segments: to segments but included in the profit (loss) of Group Head Office and other. The treasury activities of Metso are coordinated and managed Mining and Construction Technology is a leading global supplier of by the Group Treasury in order to utilize the cost efficiency benefits re- technology and services for the mining and construction industries. tained from pooling arrangements, financial risk management, bargain- Our customers work in quarrying, aggregates production, construction, ing power, cash management, and other measures. Tax planning aims at civil engineering, mining and minerals processing. The segment is orga- the minimization of Metso’s overall tax cost and it is based on the legal nized in two business lines: Services and Equipment and systems. structure and the utilization of holding company structure as applicable. Segment assets comprise intangible assets, property, plant and equip- Energy and Environmental Technology is one of the leading global sup- ment, investments in associated companies, joint ventures, available-for- pliers in power generation, automation as well as recycling solutions. sale equity investments, inventories and non-interest bearing operating Our customers work in the power generation, oil and gas, recycling as assets and receivables. They exclude interest bearing assets, including well as pulp and paper industries. Energy and Environmental Technol- also cash and cash equivalents, income tax receivables and deferred tax ogy comprises three business lines: Power, Automation and Recycling. assets, which are included in the assets of Group Head Office and other. Segment liabilities comprise non-interest bearing operating liabilities Paper and Fiber Technology is a leading global supplier of processes, and exclude income tax liabilities and deferred tax liabilities, which are machinery, equipment and services for the pulp and paper industry. included in the liabilities of Group Head Office and other. Interest bear- The offering extends over the entire process life-cycle, covering new ing liabilities are not allocated to segments, but included in the liabilities lines, rebuilds and the services business. The segment is organized in of Group Head Office and other. four business lines: Paper, Fiber, Tissue and Fabrics. Non-cash write-downs include write-offs made to the value of notes, receivables, and inventories and impairment and other write-offs Group Head Office and other is comprised of the Parent Company and recognized to reduce the value of intangible assets, property, plant and shared service centers in Finland, Sweden and Canada as well as hold- equipment and other assets. ing companies in several countries. Valmet Automotive is reported as a Gross capital expenditure comprises investments in intangible assets, separate business. property, plant and equipment, associated companies, joint ventures and available-for-sale equity investments including additions through Metso’s businesses are global in scope with operations in over 50 business acquisitions. countries. The main market areas are Europe and North America, which Information about Metso’s reportable segments as of and for the years account for over half of net sales. However, Asia and South America are ended December 31, 2008, 2009 and 2010 is presented in the following becoming increasingly important. Metso has production on all conti- tables. nents. The principal production plants are located in Finland, Sweden, France, Germany, Canada, the United States, China, India, South Africa and Brazil.
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Mining and Energy and Paper Construction Environmental and Fiber Valmet Group Head Of- Metso EUR million Technology Technology Technology Automotive fice and other Eliminations total 2008 External net sales 2,565 1,731 2,039 65 - - 6,400 Intra-Metso net sales 21 44 5 - - −70 - Net sales 2,586 1,775 2,044 65 - −70 6,400
EBITA before non-recurring items 359.3 198.3 153.5 −3.5 −21.2 - 686.4 % of net sales 13.9 11.2 7.5 −5.4 n/a - 10.7 Operating profit (loss) 358.4 176.0 130.1 −3.5 −23.8 - 637.2 % of net sales 13.9 9.9 6.4 −5.4 n/a - 10.0
Non-recurring items in cost of goods sold - - −4.9 - - - −4.9 Non-recurring items in selling, general and administrative expenses - - −2.5 - - - −2.5 Non-recurring items in other operating income and expenses, net 1.9 - - - - - 1.9 Total non-recurring items 1.9 - −7.4 - - - −5.5
Amortization −3 −22 −16 0 −3 - −44 Depreciation −31 −15 −39 −8 −1 - −94
Gross capital expenditure (including business acquisitions) −121 −80 −90 −3 −5 - −299 Non-cash write-downs −17 −3 −10 0 −1 - −31
Intangible assets and property, plant and equipment 637 494 566 45 16 - 1,758 Investments in associated companies 1 7 6 - 0 - 14 Available-for-sale equity investments 2 1 1 0 14 - 18 Inventories and other non-interest bearing assets 1,530 706 893 8 74 - 3,211 Interest bearing assets - - - - 336 - 336 Deferred tax assets - - - - 174 - 174 Total assets 2,170 1,208 1,466 53 614 - 5,511
Non-interest bearing liabilities 940 561 935 31 111 - 2,578 Interest bearing debt - - - - 1,435 - 1,435 Deferred tax liability - - - - 45 - 45 Total liabilities 940 561 935 31 1,591 - 4,058
Capital employed 1,230 647 531 22 458 - 2,888
Orders received 2,709 1,658 2,021 65 - −69 6,384 Order backlog 1,492 1,204 1,434 - - −42 4,088
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Mining and Energy and Paper Construction Environmental and Fiber Valmet Group Head Of- Metso EUR million Technology Technology Technology Automotive fice and other Eliminations total 2009 External net sales 2,061 1,495 1,404 56 - - 5,016 Intra-Metso net sales 14 28 4 - - −46 - Net sales 2,075 1,523 1,408 56 - −46 5,016
EBITA before non-recurring items 201.6 147.4 71.3 −8.1 −13.2 - 399.0 % of net sales 9.7 9.7 5.1 −14.5 n/a - 8.0 Operating profit (loss) 198.8 118.1 0.8 −8.2 −15.9 - 293.6 % of net sales 9.6 7.8 0.1 −14.6 n/a - 5.9
Non-recurring items in cost of goods sold −10.0 −6.5 −25.9 - - - −42.4 Non-recurring items in selling, general and administrative expenses −11.9 −4.6 −15.8 - - - −32.3 Non-recurring items in other operating income and expenses, net 23.1 - −13.1 - - - 10.0 Total non-recurring items 1.2 −11.1 −54.8 - - - −64.7
Amortization −4 −18 −16 0 −3 - −41 Depreciation −36 −19 −39 −7 −1 - −102
Gross capital expenditure (including business acquisitions) −40 −39 −29 −6 −4 - −118 Non-cash write-downs −11 −12 −13 0 0 - −36
Intangible assets and property, plant and equipment 657 502 776 42 17 - 1,994 Investments in associated companies 1 8 4 - 0 - 13 Available-for-sale equity investments 0 1 4 2 8 - 15 Inventories and other non-interest bearing assets 1,163 571 706 16 73 - 2,529 Interest bearing assets - - - - 993 - 993 Deferred tax assets - - - - 171 - 171 Total assets 1,821 1,082 1,490 60 1,262 - 5,715
Non-interest bearing liabilities 749 558 854 32 99 - 2,292 Interest bearing debt - - - - 1,576 - 1,576 Deferred tax liability - - - - 56 - 56 Total liabilities 749 558 854 32 1,731 - 3,924
Capital employed 1,072 524 636 28 1,108 - 3,368
Orders received 1,660 1,297 1,384 56 - −39 4,358 Order backlog 1,041 1,032 1,380 - - −38 3,415
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Mining and Energy and Paper Construction Environmental and Fiber Valmet Group Head Of- Metso EUR million Technology Technology Technology Automotive fice and other Eliminations total 2010 External net sales 2,222 1,394 1,852 84 - - 5,552 Intra-Metso net sales 13 41 4 - - −58 - Net sales 2,235 1,435 1,856 84 - −58 5,552
EBITA before non-recurring items 264.8 139.0 107.6 −4.6 −15.8 - 491.0 % of net sales 11.8 9.7 5.8 −5.5 n/a - 8.8 Operating profit (loss) 290.4 111.4 70.3 −6.4 −20.5 - 445.2 % of net sales 13.0 7.8 3.8 −7.6 n/a - 8.0
Non-recurring items in cost of goods sold −1.2 −6.3 −6.1 - - - −13.6 Non-recurring items in selling, general and administrative expenses −0.6 −1.6 −0.3 - - - −2.5 Non-recurring items in other operating income and expenses, net 34.1 - −2.0 −1.8 −2.4 - 27.9 Total non-recurring items 32.3 −7.9 −8.4 −1.8 −2.4 - 11.8
Amortization −7 −20 −29 0 −2 - −58 Depreciation −36 −21 −53 −9 −1 - −120
Gross capital expenditure (including business acquisitions) −37 −33 −64 −17 −5 - −156 Non-cash write-downs −9 −6 −7 0 - - −22
Intangible assets and property, plant and equipment 669 500 778 50 19 - 2,016 Investments in associated companies - 9 5 - 0 - 14 Available-for-sale equity investments 0 1 2 3 3 - 9 Inventories and other non-interest bearing assets 1,306 686 842 48 80 - 2,962 Interest bearing assets - - - - 1,063 - 1,063 Deferred tax assets - - - - 168 - 168 Total assets 1,975 1,196 1,627 101 1,333 - 6,232
Non-interest bearing liabilities 829 701 1,043 61 104 - 2,738 Interest bearing debt - - - - 1,373 - 1,373 Deferred tax liability - - - - 50 - 50 Total liabilities 829 701 1,043 61 1,527 - 4,161
Capital employed 1,146 495 584 40 1,179 - 3,444
Orders received 2,457 1,528 1,947 84 - −72 5,944 Order backlog 1,356 1,158 1,559 - - −50 4,023
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Net sales to unaffiliated customers by destination:
Other Other South and Nordic European North Central Asia- Africa and Metso EUR million Finland countries countries America America Pacific Middle East total 2008 461 467 1,752 1,015 770 1,516 419 6,400
2009 328 405 1,434 774 609 1,080 386 5,016
2010 295 368 1,305 920 795 1,576 293 5,552
Metso’s exports, including sales to unaffiliated customers and intra-group sales from Finland, by destination:
Other Other South and Nordic European North Central Asia- Africa and EUR million countries countries America America Pacific Middle East Total 2008 172 931 107 121 745 85 2,161
2009 152 800 48 63 367 80 1,510
2010 175 644 119 65 729 47 1,779
Long-term assets by location:
Other Other South and Nordic European North Central Asia- Africa and Non- EUR million Finland countries countries America America Pacific Middle East allocated Metso total 2008 462 68 74 171 64 114 7 856 1,816
2009 514 68 74 165 93 144 9 999 2,066
2010 505 73 90 170 94 179 10 960 2,081
Long-term assets comprise intangible assets, property, plant and equipment, investments in associated companies, available-for-sale equity invest- ments and other non-interest bearing non-current assets. Non-allocated assets include mainly goodwill and other allocated assets arising from business acquisitions that have not been pushed down to the subsidiaries’ books.
Gross capital expenditure (excluding business acquisitions) by location:
Other Other South and Nordic European North Central Asia- Africa and EUR million Finland countries countries America America Pacific Middle East Metso total 2008 91 23 19 56 16 47 3 255
2009 55 5 9 10 10 27 1 117
2010 67 9 9 6 9 34 1 135
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34 audit fees
Year ended December 31, EUR million 2008 2009 2010 Audit −2.7 −2.5 −2.5 Tax consulting −1.8 −1.7 −2.0 Other services −1.1 −0.8 −1.0 Total −5.6 −5.0 −5.5
35 lawsuits and claims
Several lawsuits, claims and disputes based on various grounds are investigation of potential antitrust violations in the rock crushing and pending against Metso in various countries, including product liability screening equipment industry. We cooperated fully with the Depart- lawsuits and claims as well as legal disputes related to Metso’s deliver- ment of Justice during the investigation. No further action has been ies. Metso’s management does not, however, expect that the outcome brought against any party. of these lawsuits, claims and disputes will have a material adverse effect on Metso in view of the grounds presented for them, provisions Lawsuits related to intellectual property rights made, insurance coverage in force and the extent of Metso’s total busi- In May 2010, Australian Federal Court entered an order related to the ness activities. Metso is also a plaintiff in several lawsuits. protection of Metso’s certain intellectual property rights. The court confirmed the settlement agreement according to which the respon- Pending asbestos litigation dents paid to Metso, without admitting liability, a compensation in the As of December 31, 2010, there had been a total of 964 complaints alleg- amount of approximately EUR 14 million. ing asbestos injuries filed in the United States in which a Metso entity In June 2010, a lawsuit involving the protection of certain Metso intel- is one of the named defendants. Where a given plaintiff has named lectual property rights, Metso versus FLSmidth-Excel LLC, Excel Foundry more than one viable Metso unit as a defendant, the cases are counted & Machine, Inc., et al., United States District Court for the Eastern by the number of viable Metso defendants. Of these claims, 324 are still District of Wisconsin, was settled. According to the settlement agree- pending and 640 cases have been closed. Of the closed cases, 110 were ment, FLSmidth-Excel LLC and Excel Foundry & Machine, Inc., without by summary judgment, 414 were dismissed, and 116 were settled. The admitting liability, have paid to Metso compensation in the amount of outcome of the pending cases is not expected to materially deviate approximately EUR 19 million. Otherwise the settlement agreement is from the outcome of the previous claims. Hence, management believes confidential. that the risk caused by the pending asbestos lawsuits and claims in In December 2010, a jury at New York court gave a verdict in a favor the United States is not material in view of the extent of Metso’s total of Metso and awarded damages to Metso in the amount of about EUR business operations. 12 million in a patent lawsuit Metso versus Powerscreen International Distribution Ltd (today known as Terex GB Ltd), Terex Corporation, Subpoena from U.S. Department of Justice requiring Emerald Equipment Systems, Inc. et al. and also found that the infringe- Metso to produce documents ment is willful, therefore potentially allowing Metso to collect multiple On July 2, 2010 Metso was informed by the Antitrust Division of the damages. The court ruling is expected to be received in spring 2011 at United States Department of Justice that it has closed its investiga- which point total compensation for damages payable to Metso will be tion of the rock crushing and screening equipment industry. Metso known. In the event the court ruling is appealed, the final outcome of Minerals Industries, Inc., which is part of Metso Corporation’s Mining the lawsuit would be expected by 2012. Metso will book the compensa- and Construction Technology, received a subpoena from the Antitrust tion in its financial results only when the final outcome of the lawsuit is Division of the United States late 2006. The subpoena called for Metso clear, earliest in 2011. Minerals Industries, Inc. to produce certain documents related to an
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36 new accounting standards
IAS 24 (Revised) classification, transfers of financial instruments between different levels IASB has published IAS 24 (Revised), ‘Related Party Transactions’, which of the fair value hierarchy, changes in classification of financial assets simplifies the disclosure requirements for government-related entities and changes in contingent liabilities and assets. and clarifies the definition of a related party. The revised standard still The amendment should be endorsed by the European Union in the requires disclosures that are important to users of financial statements first quarter of 2011 and it is effective for annual financial statements for but eliminates requirements to disclose information that is costly to periods beginning after January 1, 2011. Metso will apply the amend- gather and of less value to users. Disclosures about transactions with ment in 2011. government-related entities are required only if they are individually or None of these revisions and amendments will have a material impact collectively significant. to Metso’s financial statements. IAS 24 (Revised) has been endorsed by the European Union and it becomes effective for annual financial statements for periods begin- IFRS 9 ning on or after January 1, 2011. Metso will apply the standard for the IASB has published a new standard IFRS 9 ‘Financial instruments: financial year beginning on January 1, 2011. Recognition and measurement’. The standard represents the first mile- stone in the IASB’s planned replacement of IAS 39. It addresses simpli- IFRIC 14 (Amendment) fies classification of financial assets and requires them to be measured IASB has published IFRIC 14 (Amended), ‘Prepayment of minimum either at amortized costs or at fair value. The next steps will involve funding requirement’, which aims to correct an unintended conse- reconsideration and re-exposure of the classification and measurement quence of IFRIC 14. As a result of the interpretation, entities are in requirements for financial liabilities, impairment testing methods for some circumstances not permitted to recognise some prepayments for financial assets, and development of enhanced guidance on hedge minimum funding contributions as an asset. The amendment remedies accounting. this unintended consequence by requiring prepayments in appropriate In October 2010, IASB published the second part of IFRS 9 ‘Financial circumstances to be recognised as assets. Liabilities – Classification and Measurement’ according to which the The amendment has been endorsed by the European Union and it accounting and presentation for financial liabilities shall remain un- is effective for annual financial statements for periods beginning on or changed except for those financial liabilities for which fair value option after January 1, 2011. Metso will apply the revision for the financial year is applied. beginning on January 1, 2011. The whole standard, once completed, should become effective for the financial periods beginning on or after January 1, 2013. Provided IAS 34 (Amendment) that the standard receives endorsement by the European Union, Metso IASB has published an amendment to IAS 34 ‘Interim financial report- will apply the standard for the financial year beginning on January 1, ing’. The change provides guidance to illustrate how to apply disclosure 2013. principles in IAS 34 and add disclosure requirements around the cir- The standard can be expected to have a material effect to Metso’s cumstances likely to affect fair values of financial instruments and their financial statements.
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37 Events after balance sheet date
Between the balance sheet date and the date when these financial statements were authorized for issue no favorable nor unfavorable event requiring disclosure occurred.
Exchange Rates Used
Average rates Year-end rates 2008 2009 2010 2008 2009 2010 USD (US dollar) 1.4726 1.3960 1.3299 1.3917 1.4406 1.3362 SEK (Swedish krona) 9.6833 10.6092 9.5510 10.8700 10.2520 8.9655 GBP (Pound sterling) 0.8026 0.8948 0.8585 0.9525 0.8881 0.8608 CAD (Canadian dollar) 1.5656 1.5910 1.3773 1.6998 1.5128 1.3322 BRL (Brazilian real) 2.6711 2.7994 2.3379 3.2441 2.5113 2.2177 CNY (Chinese renminbi) 10.2451 9.5338 8.9975 9.4956 9.8350 8.8220 AUD (Australian dollar) 1.7487 1.7858 1.4514 2.0274 1.6008 1.3136
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i41003948_METSO_TP_EN.indd 136 22.2.2011 15.59 financial indicators Financial Indicators 2006–2010 EUR million 2006 2007 2008 2009 2010 Net sales 4,955 6,250 6,400 5,016 5,552 Net sales change, % 17.4 26.1 2.4 −21.6 10.7 Operating profit 457 580 637 294 445 % of net sales 9.2 9.3 10.0 5.9 8.0 Profit before tax 421 547 548 222 370 % of net sales 8.5 8.8 8.6 4.4 6.7 Profit 410 384 390 151 258 % of net sales 8.3 6.1 6.1 3.0 4.6 Profit attributable to shareholders of the company 409 381 389 150 257
Exports from Finland and international operations 4,652 5,795 5,957 4,706 5,269 % of net sales 93.9 92.7 93.1 93.8 94.9
Amortization 17 56 44 41 58 Depreciation 88 92 94 102 120 Depreciation and amortization 105 148 138 143 178 % of net sales 2.1 2.4 2.2 2.9 3.2 Goodwill impairment 7 - - - - EBITA 481 636 681 334 503 % of net sales 9.7 10.2 10.6 6.7 9.1 EBITDA 569 728 775 437 623 % of net sales 11.5 11.6 12.1 8.7 11.2
Financial income and expenses, net 36 33 89 72 75 % of net sales 0.7 0.5 1.4 1.4 1.4 Interest expenses, net 27 33 71 75 69 % of net sales 0.5 0.5 1.1 1.5 1.2 Interest cover (EBITDA) 15.8x 22.1x 8.7x 6.1x 8.3x
Gross capital expenditure (excl. business acquisitions) 131 159 255 117 135 % of net sales 2.6 2.5 4.0 2.3 2.4 Business acquisitions, net of cash acquired 277 55 44 1 21 Net capital expenditure (excl. business acquisitions and disposals) 115 140 238 85 117 % of net sales 2.3 2.2 3.7 1.7 2.1 Cash flow from operations 442 294 137 770 506 Free cash flow 364 198 29 717 435 Cash conversion, % 89 52 7 475 169
Research and development 109 117 134 115 111 % of net sales 2.2 1.9 2.1 2.3 2.0
Balance sheet total 4,968 5,254 5,511 5,715 6,232 Equity attributable to shareholders 1,444 1,608 1,444 1,783 2,049 Total equity 1,450 1,615 1,453 1,792 2,071 Interest bearing liabilities 830 819 1,435 1,576 1,373 Net interest bearing liabilities 454 540 1,099 583 310 Net working capital (NWC) 79 375 672 242 247 % of net sales 1.6 6.0 10.5 4.8 4.5 Capital employed 2,280 2,434 2,888 3,368 3,444 Return on equity (ROE), % 30.9 25.4 26.0 9.8 13.6 Return on capital employed (ROCE) before tax, % 22.5 26.1 23.2 10.0 13.5 Return on capital employed (ROCE) after tax, % 21.9 19.0 17.3 7.7 10.2 Equity to assets ratio, % 35.4 37.7 30.9 35.7 38.1 Gearing, % 31.3 33.4 75.7 32.5 15.0 Debt to capital, % 36.4 33.7 49.7 46.8 39.9
Orders received 5,705 6,965 6,384 4,358 5,944 Order backlog, December 31 3,737 4,341 4,088 3,415 4,023
Average number of personnel 23,364 26,269 28,010 27,813 27,585 Personnel, December 31 25,678 26,837 29,322 27,166 28,593
Formulas for calculation of financial indicators are presented on the following page.
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Formulas for calculation of financial indicators
EBITA: Net working capital (NWC): Operating profit + amortization + goodwill impairment Inventory + trade receivables + other non-interest bearing receivables − trade payables − advances received − other non-interest bearing liabilities
EBITDA: Capital employed: Operating profit + depreciation and amortization + goodwill impairment Balance sheet total − non-interest bearing liabilities
Return on equity (ROE), %: Free cash flow: Profit Operating cash flow − capital expenditures on maintenance investments + ×100 Total equity (average for period) proceeds from sale of fixed assets
Return on capital employed (ROCE) before tax, %: Cash conversion, %: Profit before tax + interest and other financial expenses Free cash flow ×100 ×100 Balance sheet total − non-interest bearing liabilities (average for period) Profit
Return on capital employed (ROCE) after tax, %: Debt to capital, %: Profit + interest and other financial expenses Interest bearing liabilities ×100 ×100 Balance sheet total − non-interest bearing liabilities (average for period) Total equity + interest bearing liabilities
Gearing, %: Interest cover (EBITDA): Net interest bearing liabilities EBITDA ×100 Total equity Financial income and expenses, net
Equity to assets ratio, %: Total equity ×100 Balance sheet total – advances received
Formulas for calculation of share-related indicators
Earnings/share: Effective dividend yield, %: Profit attributable to shareholders of the company Dividend per share ×100 Average number of outstanding shares during period Share price on December 31
Free cash flow/share: P/E ratio: Free cash flow Share price on December 31 Average number of outstanding shares during period Earnings per share
Equity/share: Average share price: Equity attributable to shareholders of the company Total value of shares traded in euro Number of outstanding shares at end of period Number of shares traded during period
Dividend/share: Market capitalization: Dividend distribution Number of outstanding shares × share price at end of period Number of outstanding shares at end of period
Dividend/earnings, %: Total shareholder return (TSR), %: Dividend per share Change in share price + dividend paid during period ×100 ×100 Earnings per share Share price at end of previous period
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i41003948_METSO_TP_EN.indd 138 22.2.2011 15.59 parent company financial statements Parent Company Statement of Income, in Accordance with Finnish Accounting Standards, FAS
Year ended December 31, EUR million 2008 2009 2010 Net sales - - - Other operating income 1 0 0 Personnel expenses −13 −14 −13 Depreciation and amortization −1 −1 −1 Other operating expenses −18 −13 −15 Operating loss −31 −28 −29
Financial income and expenses, net 267 232 212 Profit before extraordinary items 236 204 183
Group contributions 137 44 77 Profit before appropriations and taxes 373 248 260
Income taxes for the period 0 0 0 Change in deferred taxes −11 5 5 Profit 362 253 265
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Assets As at December 31, EUR million 2009 2010 Non-current assets Intangible assets 1 1 Tangible assets 1 1 Investments Shares in Group companies 2,503 2,517 Other investments 407 339 Total non-current assets 2,912 2,858
Current assets Long-term receivables 19 26 Short-term receivables 368 638 Securities 497 520 Bank and cash 28 38 Total current assets 912 1,222
Total assets 3,824 4,080
Shareholders’ equity and liabilities As at December 31, EUR million 2009 2010 Shareholders’ equity Share capital 241 241 Invested non-restricted equity fund 573 573 Other reserves 194 194 Retained earnings 606 759 Total shareholders’ equity 1,614 1,767
Liabilities Long-term liabilities 1,332 986 Current liabilities 878 1,327 Total liabilities 2,210 2,313
Total shareholders’ equity and liabilities 3,824 4,080
140 Metso Financial Statements 2010 www.metso.com
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Share Invested Share premium Legal non-restricted Other Retained EUR million capital reserve reserve equity fund reserves earnings Total Balance at December 31, 2007 241 152 215 - 194 519 1,321
Dividends - - - - - −425 −425 Decrease and transfer of share premium and legal reserve - −152 −215 367 - - - Profit - - - - - 362 362
Balance at December 31, 2008 241 - - 367 194 456 1,258
Dividends - - - - - −99 −99 Share issue - - - 206 - - 206 Other - - - - - −4 −4 Profit - - - - - 253 253
Balance at December 31, 2009 241 - - 573 194 606 1,614
Dividends - - - - - −105 −105 Other - - - - - −7 −7 Profit - - - - - 265 265
Balance at December 31, 2010 241 - - 573 194 759 1,767
www.metso.com Metso Financial Statements 2010 141
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Shares and share capital non-restricted equity at the market price at the time of repurchase On December 31, 2010, Metso Corporation’s share capital, fully paid up from NASDAQ OMX Helsinki Ltd. and entered in the trade register, was EUR 240,982,843.80, and the total The company’s repurchased shares can be held by the company, number of shares 150,348,256. Metso has one share series, and each cancelled, or conveyed. The shares can be used to develop Metso’s share entitles its holder to one vote at the General Meeting and to an capital structure, for acquisitions, capital expenditure, to finance equal amount of dividend. Metso’s shares are registered in the Finnish or implement other arrangements pertaining to the company’s book-entry system. business operations or as part of Metso’s incentive plans. As of December 31, 2010, the Board of Directors had not exercised this Metso’s own shares authorization. On December 31, 2010, Metso Corporation held a total of 718,397 own shares, which represent 0.5 percent of all Metso shares and votes. Dur- Authorization to issue shares ing the year, Metso recovered 8,780 shares from share-based incentive Under the authorization granted, the Board of Directors is entitled plan participants having terminated their employment. to decide on the issue of a maximum of 15,000,000 new shares, and on the convey of a maximum of 10,000,000 of Metso’s own shares Board authorizations held by the company. The new shares can be issued, and Metso’s On March 30, 2010, the Annual General Meeting authorized the Board own shares held by the company can be conveyed against pay- of Directors to decide on the repurchase of the company’s own shares, ment received or without payment. the share issue and the granting of special rights. The Board of Directors can decide on share issue without pay- ment to the company. A maximum of 10,000,000 shares, includ- Authorization to repurchase the Corporation’s own shares ing the company’s own shares repurchased by the authorization Under the authorization granted by the 2009 Annual General Meet- granted, can be granted to the company. ing, Metso decided on February 8, 2010 to repurchase a maximum of The new shares and the own shares held by the company may 300,000 of the company’s own shares, which corresponds about 0.2 be issued to the company’s shareholders in proportion to their percent of all the outstanding shares of Metso. The repurchases were current holding; or by means of a directed issue, waiving the completed by March 9, 2010. The repurchase of the shares was related pre-emptive subscription rights of the shareholders, if there is to Metso’s share based incentive program i.e. Metso Share Ownership a weighty financial reason for the company to do so, such as to Plan 2010–2012 to be used as potential reward payments in accordance develop the capital structure of the company or to finance or carry with the plan criteria. out future acquisitions, investments or other arrangements related Own shares were repurchased with the company’s non-restricted to the company’s business or as part of the company’s incentive equity at market price in public trading on the NASDAQ OMX Helsinki. program. A directed issue can only be executed without payment The average purchase price per share was EUR 23.49 and the total if there is an especially weighty financial reason for the company to amount EUR 7,047,343.89. do so, taking the interests of all shareholders into account. The 2010 Annual General Meeting authorized the Board of Direc- The subscription price of new shares issued shall be recorded in tors to decide on the repurchase of a maximum of 10,000,000 of the the invested non-restricted equity fund and the consideration paid company’s own shares. The company’s own shares can be repurchased, for the conveyance of the company’s own shares shall be recorded in a proportion other than shareholders’ holdings, with the company’s in the invested non-restricted equity fund.
Metso share’s monthly turnover and average share Metso’s and competitors’ share price price on the nasDaQ oMX helsinki development, scaled EUR million EUR ,
,
,
Monthly turnover, EUR million Metso Average monthly share price Metso’s competitors: ABB, Andritz, Emerson, FLSmidth, Outotec, Sandvik OMX Portfolio index, scaled
142 Metso Financial Statements 2010 www.metso.com
i41003948_METSO_TP_EN.indd 142 22.2.2011 15.59 shares and shareholders
Additionally, the Board is authorized to grant special rights referred Share-based incentive plans to in chapter 10, Section 1 of the Finnish Companies Act, which carry the Option programs right to receive, against payment, new shares of the company or the There are no option programs in Metso. company’s own shares held by the company in such a manner that the subscription price is paid by using the subscriber’s receivables to offset Share ownership plans the subscription price (”convertible bonds”). The maximum number Metso’s share ownership plans are part of the remuneration and of shares to be issued is 15,000,000 whereby this maximum number commitment programs for the management of the Group and the busi- is included in the maximum number of shares noted in the previous nesses. Below is a brief description of the programs. paragraph. The Board of Directors shall decide on other matters related to the Share Ownership Plan 2009–2011 (SOP 2009–2011) share issues. In October 2008, the Board of Directors approved a share ownership The share issue authorization is valid until April 30, 2013, and it plan for the years 2009–2011. The plan has one three-year earnings revokes the share issue authorization given by the Annual General period and required participants’ personal investment in Metso shares Meeting on March 31, 2009. at the beginning of the program. Any possible reward from the plan requires continued employment with Metso and reaching the financial Market capitalization and trading targets set for the plan. At the end of 2010, the plan had 88 participants Metso Corporation’s shares are quoted on the NASDAQ OMX Helsinki and the rewards that can be paid correspond to a maximum of 369,925 (OMXH: MEO1V) since July 1, 1999. Metso’s ADSs (American Depositary Metso shares. Members of the 2010 Executive Team may receive a maxi- Shares) are traded in the United States on the OTC market under the mum of 77,400 shares as share rewards. ticker symbol MXCYY. Metso’s share price on the NASDAQ OMX Helsinki in 2010 rose by 70 Share Ownership Plan 2010–2012 (SOP 2010–2012) percent, from EUR 24.63 to EUR 41.80. At the same time, the NASDAQ In October 2009, the Board of Directors approved a similar share OMX Helsinki portfolio index, OMX Helsinki CAP, increased by 25 ownership plan for the years 2010–2012. The plan has one three-year percent. The highest quotation of Metso’s share on the NASDAQ OMX earnings period and required participants’ personal investment in Helsinki in 2010 was EUR 43.23, and the lowest EUR 20.91. The share price Metso shares at the beginning of the program. Any possible reward on December 30, 2010 was EUR 41.80 and the average trading price from the plan requires continued employment with Metso and reach- for the year was EUR 28.80. Metso’s market capitalization at year-end, ing the financial targets set for the plan. At the end of 2010, the plan excluding own shares held by the company, was EUR 6,255 million. Total had 91 participants and the rewards that can be paid correspond to shareholder return (TSR) was 73 percent in 2010. a maximum of 339,350 Metso shares. Members of the 2010 Executive In 2010, 217,467,633 Metso shares were traded on the NASDAQ OMX Team may receive a maximum of 77,400 shares as share rewards. Helsinki, equivalent to a turnover of EUR 6,263 million. The average daily trading volume was 862,967 shares, which is 33 percent less than Share Ownership Plan 2011–2013 (SOP 2011–2013) in 2009. During the year, 145 percent of shares were traded (relative In September 2010, the Board of Directors approved a share ownership turnover in 2009: 214%). plan for 2011–2013. The plan includes one three-year earnings period. In 2010, the highest trading price for Metso’s ADSs in the United States The plan requires participants’ personal investment in Metso shares was USD 57.24, and the lowest USD 28.26. The ADS price on the OTC at the beginning of the program. Any possible reward from the plan market at year-end was USD 55.85. Each ADS represents one share.
earnings/shareEarnings/share andand dividend/sharedividend/share, EUR (pylväs) equity/shareEquity/share, EUR (pylväs)
EUR EUR
.3,5 14
.3,0 12
.2,5 10 . 2,0 8 . 1,5 6 . 1,0 4 . 0,5 2 Equity/share 0,0 0 2006 2007 2008 2009 *2010 2006 2007 2008 2009 2010 Earnings/share Dividend/share Minimum dividend per dividend policy (at least 50% of EPS) * Board’s proposal
www.metso.com Metso Financial Statements 2010 143
i41003948_METSO_TP_EN.indd 143 22.2.2011 15.59 shares and shareholders
requires continued employment with Metso and reaching The proposed dividend of EUR 1.55 (EUR 0.70 in 2009) LINKS the financial targets set for the plan. At the end of 2010, corresponds to 91 percent of the profit attributable to & NOTES 74 people had confirmed their participation in the plan shareholders for the year (66% in 2009), and the effective and the rewards that can be paid correspond to a maxi- dividend yield is 3.7 percent (2.8% in 2009). The proposed 1 More about mum of 251,698 Metso shares. The shares for the plan are dividend takes into consideration Metso’s strong financial share ownership acquired in public trading and therefore the plan will not position and dividend policy. Furthermore, it should be plans have diluting effect on the share value. Members of the noted that dividend paid in 2009 was 25 percent of earn- www.metso.com/ remuneration new Executive Team (as of March 1, 2011) may receive a ings per share because of the financial market turmoil at maximum of 77,400 shares as share rewards. that point of time. 2 Current list More detailed information on the share-based incentive of Metso’s biggest plans is presented in the Notes to the Financial Statements Shareholders shareholders and (Note 23, on pages 118 – 119). At the end of 2010, Metso had 43,595 shareholders in the their holdings book-entry system, the largest of which was Solidium www.metso.com/ Holdings of Metso’s Board of Directors and Oy, with 10.4 percent (2009: 10.4%) ownership. Nominee- shareholders executive management registered shares and shares in direct foreign ownership At year-end, the members of Metso’s Board of Directors, accounted for 53.8 percent (53.4%) of the total stock. Finn- 3 Up-to-date information on CEO Jorma Eloranta, Executive Vice President Matti Käh- ish institutions, companies and organizations accounted Metso’s insiders könen, and their interest parties held altogether 161,556 for 23.3 percent (22.0%) and Finnish private persons for 12.5 and their holdings Metso shares, which correspond to 0.11 percent of the paid percent (14.2%) of Metso’s shares. www.metso.com/ up share capital and votes in Metso. Metso is not aware of any shareholder’s agreements re- insiders garding the ownership of Metso shares and voting rights. Dividend policy Metso’s dividend policy is to distribute at least 50 percent of earnings per share in annual dividends or in other forms of repatriation of capital to its shareholders. The Board of Directors proposes to the Annual General Meeting to be held on March 30, 2011 that the dividend of EUR 1.55 per share be distributed for the year ended on December 31, 2010.
Market capitalization, on December 3131, EUR totalOsakkeen shareholder kokonaistuotto return (tsR) (TSR) million (pylväs) EUR million %
,7000 200
,6000 150
,5000 100
,4000 50 ,3000 0 ,2000
−-50 ,1000 Market capitalization, Dec. 31 0 −-100 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
144 Metso Financial Statements 2010 www.metso.com
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Share capital and share data 2006–2010
EUR million (except for number of shares, per share data and share prices) 2006 2007 2008 2009 2010 Share capital, December 31 241 241 241 241 241 Number of shares, December 31: Number of outstanding shares 141,358,773 141,487,234 141,623,642 149,938,639 149,629,859 Own shares held by the Parent Company 60,841 60,841 60,841 409,617 718,397 Shares administered by a partnership (MEO1V Incentive Ky) 300,000 206,539 70,131 - - Total number of shares 141,719,614 141,754,614 141,754,614 150,348,256 150,348,256 Average number of outstanding shares 141,580,759 141,460,012 141,595,026 141,477,476 149,682,703 Average number of diluted shares 141,600,424 141,460,012 141,595,026 141,526,284 149,836,864 Trading volume, NASDAQ OMX Helsinki 266,774,359 350,168,659 359,378,566 321,093,368 217,467,633 Trading volume, NYSE 1) 4,682,700 6,020,320 - - - % of shares 2) 192.0 251.8 253.8 214.1 145.3 Earnings/share, basic 2.89 2.69 2.75 1.06 1.71 Earnings/share, diluted 2.89 2.69 2.75 1.06 1.71 Free cash flow/share 2.57 1.40 0.20 5.07 2.91 Dividend/share 3) 1.50 3.00 0.70 0.70 1.55 Dividend 3) 212 425 99 105 232 Dividend/earnings, % 3) 52 112 25 66 91 Effective dividend yield, % 3) 3.9 8.0 8.2 2.8 3.7 P/E ratio 13.23 13.88 3.10 23.24 24.44 Equity/share 10.21 11.36 10.19 11.89 13.69 Highest share price 38.65 49.95 38.56 24.78 43.23 Lowest share price 23.21 34.06 7.74 7.03 20.91 Average share price 30.45 41.43 23.66 13.26 28.80 Share price, December 31 38.24 37.33 8.52 24.63 41.80 Market capitalization, December 31 4) 5,406 5,282 1,207 3,693 6,255
1) Trading volume until September 14, 2007. 2) Of the total amount of shares for public trading (For the years 2006–2007 trading in both NASDAQ OMX Helsinki and NYSE, from 2008 onwards only in NASDAQ OMX Helsinki) 3) 2010 proposal by the Board of Directors 4) Excluding own shares held by the Parent Company and shares administered by a partnership
Formulas for calculation of share-related indicators are on page 138.
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i41003948_METSO_TP_EN.indd 145 22.2.2011 15.59 shares and shareholders
Metso´s biggest shareholders on December 31, 2010
Number % of share of shares capital and and votes voting rights 1 Solidium Oy 15,695,287 10.4 2 Ilmarinen Mutual Pension Insurance Company 5,165,943 3.4 3 Varma Mutual Pension Insurance Company 4,113,552 2.7 4 The State Pension Fund 1,475,000 1.0 5 Nordea Funds 1,437,696 1.0 Nordea Nordenfonden 542,939 0.4 Nordea Finland fund 420,000 0.3 Nordea Pro Finland fund 160,000 0.1 Nordea Nordic fund 151,278 0.1 Nordea Finland Index Fund 112,479 0.1 Nordea Finland special fund 51,000 0.0 Nordea Europe index fund 856 0.0 6 Svenska litteratursällskapet i Finland r.f. 1,227,706 0.8 7 OP Funds 1,204,295 0.8 OP-Delta Fund 930,000 0.6 OP-Focus Non-UCITS Fund 274,295 0.2 8 The Local Government Pension Institution 1,198,186 0.8 9 Odin Funds 905,530 0.6 Odin Norden 657,878 0.4 Odin Finland 212,414 0.1 Odin Norden II 29,998 0.0 Odin Finland II 5,240 0.0 10 Folketrygfondet, Oslo, Norway 664,589 0.5 10 largest owner groups in total 33,087,784 22.0 Nominee-registered shares *) 77,826,188 51.8 Other shareholders 38,706,127 25.7 Own shares held by the Parent Company 718,397 0.5 In the issuer account 9,760 0.0 Total 150,348,256 100.0
*) Below we present of flagging notifications of Metso’s shareholders whose holdings have exceeded or fallen below 5 percent of Metso’s voting rights or share capital. The list indicates the situation on December 31, 2010.
Disclosure of changes in holdings BlackRock Investment Management (UK) Limited announced that Marathon Asset Management announced that on July 12, 2010, Mara- on February 24, 2010 the BlackRock, Inc. holding in shares of Metso thon Asset Management LLP holding in shares of Metso Corporation exceeded the 5 percent threshold. The holding amounted to 7,563,054 fell below the 5 percent threshold. The holding amounted to 7,437,730 shares, which corresponds to 5.03 percent of the total amount of shares shares, which corresponds to 4.95 percent of the total amount of and votes in Metso Corporation. shares and votes in Metso Corporation, after being, on the basis of their previous announcement, 5.12 percent on November 11, 2008. Out BlackRock Investment Management (UK) Limited has announced that of this holding, Marathon Asset Management LLP was in possession of on March 19, 2010 the BlackRock, Inc. holding in shares of Metso Cor- 5,573,661 shares to which they had voting rights. This voting authority poration fell below the 5 per cent threshold. The holding amounted to represents 3.71 percent of the total voting rights in Metso. 7,298,453 shares, which corresponds to 4.85 percent of the total amount of shares and votes in Metso Corporation.
Breakdown by shareholder category on December 31, 2010 LINKS & NOTES
Nominee-registered and 1 Up-to-date list of 12.5 non-Finnish holders 53.8% (53.4%) flagging Solidium Oy 10.4% (10.4%) notifications 23.3 Finnish institutions, companies www.metso.com/ 53.8 and foundations 23.3% (22.0%) flagging Finnish private investors 10.4 12.5% (14.2%)
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Changes in number of shares and share capital, Jan 1, 2001 – Dec 31, 2010
Change in Change in Number number Share capital, share capital, of shares of shares EUR EUR 2001 New shares subscribed with the Metso 1994 options, which were transferred from Valmet Corporation 136,250,545 793,270 231,625,926.50 1,348,559.00 2005 New shares subscribed with the Metso 2000A/B and 2001A/B options 141,654,614 5,404,069 240,812,843.80 9,186,917.30 2006 New shares subscribed with the Metso 2003A options 141,719,614 65,000 240,923,343.80 110,500.00 2007 New shares subscribed with the Metso 2003A options 141,754,614 35,000 240,982,843.80 59,500.00 2008 No changes in number of shares nor in share capital 141,754,614 - 240,982,843.80 - 2009 New shares issued as consideration for the Tamfelt acquisition 150,348,256 8,593,642 240,982,843.80 - 2010 No changes in number of shares nor in share capital 150,348,256 - 240,982,843.80 -
Breakdown of share ownership on December 31, 2010 % of Total number % of share share- of shares capital and Number of shares Shareholders holders and votes voting rights 1–100 17,445 40.0 924,661 0.6 101–1,000 21,888 50.2 7,849,385 5.2 1,001–10,000 3,877 8.9 9,971,815 6.6 10,001–100,000 305 0.7 8,157,619 5.4 over 100,001 61 0.2 44,890,431 29.9 Total 43,576 100.0 71,793,911 47.7
Nominee-registered shares 18 77,826,188 51.8 Own shares held by the Parent Company 1 718,397 0.5 In the issuer account 9,760 0.0 Number of shares issued 150,348,256 100.0
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i41003948_METSO_TP_EN.indd 147 22.2.2011 15.59 auditor’s report Auditor’s Report
To the Annual General Meeting of Metso Corporation preparation of financial statements and report of the Board of Directors We have audited the accounting records, the financial statements, the that give a true and fair view in order to design audit procedures report of the Board of Directors and the administration of Metso Cor- that are appropriate in the circumstances, but not for the purpose of poration for the year ended 31 December, 2010. The financial statements expressing an opinion on the effectiveness of the company’s internal comprise the consolidated income statement, statement of compre- control. An audit also includes evaluating the appropriateness of ac- hensive income, balance sheet, statement of cash flows, statement of counting policies used and the reasonableness of accounting estimates changes in equity and notes to the consolidated financial statements, made by management, as well as evaluating the overall presentation of as well as the parent company’s income statement, balance sheet, cash the financial statements and the report of the Board of Directors. flow statement and notes to the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Responsibility of the Board of Directors and the President and CEO Opinion on the Consolidated Financial Statements The Board of Directors and the President and CEO are responsible for In our opinion, the consolidated financial statements give a true and the preparation of consolidated financial statements that give a true fair view of the financial position, financial performance, and cash and fair view in accordance with International Financial Reporting flows of the group in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, as well as for the preparation Standards (IFRS) as adopted by the EU. of financial statements and the report of the Board of Directors that give a true and fair view in accordance with the laws and regulations Opinion on the Company’s Financial Statements governing the preparation of the financial statements and the report of and the Report of the Board of Directors the Board of Directors in Finland. The Board of Directors is responsible In our opinion, the financial statements and the report of the Board for the appropriate arrangement of the control of the company’s ac- of Directors give a true and fair view of both the consolidated and the counts and finances, and the President and CEO shall see to it that the parent company’s financial performance and financial position in accor- accounts of the company are in compliance with the law and that its dance with the laws and regulations governing the preparation of the financial affairs have been arranged in a reliable manner. financial statements and the report of the Board of Directors in Finland. The information in the report of the Board of Directors is consistent Auditor’s Responsibility with the information in the financial statements. Our responsibility is to express an opinion on the financial statements, on the consolidated financial statements and on the report of the Other Opinions Board of Directors based on our audit. The Auditing Act requires that We support that the financial statements and the consolidated financial we comply with the requirements of professional ethics. We conducted statements should be adopted. The proposal by the Board of Directors our audit in accordance with good auditing practice in Finland. Good regarding the use of the profit shown in the balance sheet is in compli- auditing practice requires that we plan and perform the audit to obtain ance with the Limited Liability Companies Act. We support that the reasonable assurance about whether the financial statements and the Members of the Board of Directors and the President and CEO of the report of the Board of Directors are free from material misstatement, parent company should be discharged from liability for the financial and whether the members of the Board of Directors of the parent period audited by us. company and the President and CEO are guilty of an act or negligence which may result in liability in damages towards the company or Helsinki, 15 February, 2011 whether they have violated the Limited Liability Companies Act or the articles of association of the company. PricewaterhouseCoopers Oy An audit involves performing procedures to obtain audit evidence Authorised Public Accountants about the amounts and disclosures in the financial statements and the report of the Board of Directors. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of materi- al misstatement, whether due to fraud or error. In making those risk as- Johan Kronberg sessments, the auditor considers internal control relevant to the entity’s Authorised Public Accountant
148 Metso Financial Statements 2010 www.metso.com
i41003948_METSO_TP_EN.indd 148 22.2.2011 15.59 METSO CORPORATE GOVERNANCE STATEMENT 2010 Metso Corporate Governance Statement
Metso’s governing bodies We have prepared this corporate governance statement in accordance with recommendation ANNUAL 54 of the Finnish Corporate Governance Code GENERAL MEET ING OF SHARE published by the Securities Market Association, HOLDERS and it also covers other key corporate govern- Nomination ance areas that we want to highlight for inves- Board tors. This corporate governance statement is issued separately from the Board of Director’s EXTERNAL report. We provide more detailed and updated AUDIT information about our governance issues on our website at www.metso.com. BOARD OF INTERNAL DIRECTORS CONTROL Table of contents Audit Committee Internal Audit Regulatory framework ...... 149 Remuneration and HR Committee Governing bodies of Metso ...... 150 Risk Man- Management structure ...... 153 agement Main features of internal control and risk management systems pertaining to the financial reporting process ...... 154 Compliance with laws and Code of Conduct ...... 156 GROUP PRESIDENT AND CEO Auditors ...... 156 Insiders ...... 157 EXECUTIVE TEAM AND EXECUTIVE FORUM Management remuneration ...... 157 Board of Directors ...... 160 Executive Team ...... 162 BUSINESS LINE PRESIDENTS Metso Executive Forum ...... 164
Regulatory framework the Finnish Companies Act and the Finnish Securities The duties of Metso Corporation’s bodies are governed Markets Act. The Code is publicly available on www. by Finnish legislation and the duties of its subsidiaries’ cgfinland.fi. Metso has not deviated from the Code’s bodies by the legislations of their place of business. recommendations. In our decision-making and govern- Metso complies with the Finnish Corporate Governance ance, we also comply with other Finnish legislation and code (“the Code”) issued by the Securities Market Asso- regulations, our Articles of Association, the guidelines ciation and which came into effect on October , , as for insiders published by NASDAQ OMX Helsinki Ltd well as with the corporate governance principles defined (hereinafter the Helsinki Exchange) as well as the Finnish by our Board of Directors; these principles are based on Central Chamber of Commerce’s Helsinki Takeover Code. www.metso.com Metso Annual Report METSO CORPORATE GOVERNANCE STATEMENT 2010
Metso’s Audit Committee has reviewed this corporate governance statement. Our independent auditor, Price- waterhouseCoopers Oy, has verified that this statement ANNUAL GENERAL has been issued and that the statement-related descrip- tion of the main features of the internal control and risk MEETING OF SHARE management systems related to the financial reporting process is consistent with our financial statements. HOLDERS We prepare consolidated financial statements and in- terim reports in accordance with the International Finan- The Annual General Meeting is the supreme cial Reporting Standards (IFRS), as adopted by EU, the decision-making body of Metso. The Annual Finnish Securities Markets Act as well as the applicable General Meeting of Shareholders is held once Finnish Financial Supervision Authority’s standards and a year before the end of June. It decides on the Helsinki Exchange’s rules. The Board of Directors’ report matters stipulated in the Finnish Companies of Metso and the Parent Company financial statements Act and the Articles of Association. Such issues are prepared in accordance with the Finnish Accounting include: Act and the guidelines and statements of the Finnish t Adoption of the financial statements Accounting Board. t Use of the profit shown on the balance sheet t Election of the Chairman, Vice Chairman and Governing bodies of Metso members of the Board and the decision on Metso’s supreme decision-making body is the Annual their remuneration General Meeting of Shareholders. The Board of Directors t Discharging from liability the members of (Board) and the President and Chief Executive Officer the Board and the CEO (CEO) are responsible for the management of Metso. t Election of the Auditor and the decision on Other Metso executives have an assisting and support- compensation ing role. The Board seeks to ensure the compliance of t Proposals made by the Board or a share- good corporate governance principles within Metso. holder (e.g. amendments of the Articles of Association, the repurchase the company’s Annual General Meeting of Shareholders own shares, share issue, giving special Every holder of Metso shares has the right to participate authorizations) in the Annual General Meeting, and each share entitles its holder to one vote. Decisions are primarily made by a simple majority of votes, such as decisions on the ap- proving the financial statements, payment of dividends, election of Board members and auditors and their agenda. The request is always deemed as submitted remuneration, and discharging from liability the mem- early enough if the Board has been notified about it at bers of the Board and the CEO. A / qualified majority least four weeks prior to the delivery of the meeting is required for some decisions: authorizing the Board to notice. issue shares or to repurchase the company’s own shares We publish a notice of the Annual General Meet- or amending the company’s Articles of Association. ing no more than two months and no less than Participation in the Annual General Meeting days before the meeting in at least two newspapers requires that the shareholder is registered in Metso’s published regularly in Helsinki, Finland, or we deliver it shareholder register on the record date of the meeting, directly to shareholders when required by law. Addition- which is eight business days before the meeting, and ally, we publish the meeting notice as a stock exchange that he/she registers for the meeting by the date men- release immediately after the Board has decided on the tioned in the meeting notice. The holder of a nominee- convening of the Annual General Meeting. The Annual registered share may be entered temporarily in the General Meeting agenda, decision-making proposals shareholder register for participation in the Annual and meeting documents are available on our website at General Meeting if, based on his/her share, the share- least three weeks prior to the meeting. holder has the right to be registered in the shareholder register on the record date. In addition, participation The Annual General Meeting was held in Helsinki requires advance notice of participation at the latest by on March , . A total of , shareholders repre- the date mentioned in the meeting notice. senting about . percent of the company’s votes par- Shareholders are entitled to having an issue put on ticipated in it either in person or by proxy. All members the Annual General Meeting’s agenda, provided that of the Board except Jaakko Rauramo, all candidates for such an issue requires a decision by the Annual General the Board, the chairman of Metso’s Nomination Board, Meeting according to the Finnish Companies Act. The Metso’s CEO, and Metso’s Executive Team as well as the request must be submitted in writing to the Board early independent auditor appointed by the Annual General enough so that the issue can be included in the meet- Meeting participated in the meeting. ing notice. On our website we will announce the date SEE LINK by which the shareholder must notify the Board of an issue they want added to the Annual General Meeting
Metso Annual Report www.metso.com METSO CORPORATE GOVERNANCE STATEMENT 2010
Nomination Board Board of Directors LINKS & The Nomination Board, established by decision of the The Board oversees the management and operations NOTES Annual General Meeting, prepares proposals regard- of Metso. It also decides on significant matters related ing the composition of the Board and remuneration to to strategy, investments, organization and finances. Our The auditor’s report, its members for the next Annual General Meeting. We Board consists of five to eight permanent members, presented on page have had this kind of procedure in place since , at which the Annual General Meeting elects for a term , covers the Board the proposal of Metso’s largest shareholder Solidium that lasts until the end of the next Annual General of Directors’ report, consolidated financial (previously the Finnish State).The Nomination Board Meeting. Individuals who have reached the age of statements and the consists of representatives appointed by the four largest years cannot be elected to the Board. Pursuant to Parent Company shareholders on a date annually defined by the Annual the Finnish Act on Personnel Representation in the financial statements. General Meeting. If a shareholder chooses not to exer- Annual General cise its right to appoint a representative to the Nomina- Meeting decisions tion Board, the right is transferred to the next largest www.metso.com/agm shareholder. In addition, the Nomination Board includes the Chairman of the Board as an expert member. The MAIN DUTIES OF THE Chairman of the Board convenes the Nomination Board, which elects its chairman from among its members. BOARD OF DIRECTORS
Nomination Board ahead of 2011 AGM The Board’s main duties include the following: Metso’s four largest shareholders as of November , t To approve Metso’s long-term goals and announced the following representatives for the strategy Nomination Board: Kari Järvinen (M.Sc. Engineering, t To approve annual business and other major MBA, b. ), Managing Director, Solidium Oy; Lars action plans Förberg (M.Sc. Econ. & Bus. Adm., b. ), Managing t To approve Metso’s organizational structure Partner, Cevian Capital; Matti Vuoria (Master of Laws, BA, and the principles for the incentive systems b. ), Managing Director, President and CEO, Varma t To appoint and to dismiss the CEO and to Mutual Pension Insurance Company; and Harri Sailas approve the appointment and dismissal of (M.Sc. Econ. & Bus. Adm., b. ), CEO, Ilmarinen Mutual deputy CEO, Metso Executive Team members Pension Insurance Company. and the Presidents of the reporting seg- The Nomination Board elected Kari Järvinen as its ments chairman and Jukka Viinanen, Chairman of the Board t To monitor and evaluate the performance of of Directors, served as its expert member. the CEO and to decide upon his remunera- The Nomination Board convened three times and tion and benefits made one unanimous resolution without convening. t To ensure that the supervision of the ac- On January , the Nomination Board provided counting and financial matters is properly or- Metso’s Board its proposal for the Annual General ganized, and to ensure proper preparation of Meeting to be held on March , . The Nomination the interim and annual financial statements Board proposes that the number of Board members is t To ensure the adequacy of planning, infor- eight and that the current Board members Maija-Liisa mation and control systems for monitoring Friman, Christer Gardell, Yrjö Neuvo, Erkki Pehu- the bookkeeping and handling of financial Lehtonen, Pia Rudengren, Jukka Viinanen and Mikael matters and risk management von Frenckell be re-elected. It is proposed that Jukka t To make proposals for and convene the An- Viinanen be elected as Chairman of the Board and nual General Meeting of Shareholders Maija-Liisa Friman as Vice Chairman. It is also proposed t To decide upon other matters that do not that Ozey K. Horton Jr. be elected as new member of belong to day-to-day operations or matters the Board. that are of major importance, such as major The nomination Board proposes the following an- investments, acquisitions and divestitures, nual fees be paid: Chairman EUR ,, Vice Chairman and major joint ventures and loan agree- and the Chairman of the Audit Committee EUR , ments. The Board also sets the principles for and other Board members EUR ,. In addition a fee giving financial guarantees by Metso of EUR per meeting shall be paid for those mem- t To approve Metso’s corporate policies in key bers whose place of residence is in Nordic countries, management areas, like corporate govern- EUR , for those members whose place of resi- ance, risk management, financial control, dence is elsewhere in Europe and EUR , for those treasury, internal control, information members whose place of residence is outside of Europe security, corporate communications, human for the Board and Committee meetings attended. The resources, environment and disclosure policy Nomination Board proposes that percent of the and code of conduct annual remuneration be paid in Metso shares acquired from the market.
www.metso.com Metso Annual Report METSO CORPORATE GOVERNANCE STATEMENT 2010
Administration of Undertakings, a personnel represent- Among other things the Audit Committee: ative participates in the meetings as an invited expert t Assesses Metso’s draft financial statements and inter- with no voting rights or legal liability for the Board’s im reports, accounting policies, accounting principles decisions. There is no specific order of appointment of of significant or exceptional business transactions, directors. The Board is convened by the Chairman, or management forecasts and statements relating to if the Chairman is unavailable, by the Vice Chairman. Metso’s short-term outlook The Board has a quorum when more than half of the t Assesses compliance with laws and provisions and members are present and one of these is the Chairman with internal instructions, as well as assesses the ef- or the Vice Chairman. A decision of the Board shall be ficiency of internal control and risk management carried by a majority of those present or, in the case of t Reviews Metso’s Corporate Governance Statement a tie, the Chairman shall have the casting vote. The CEO t Approves the audit plans of internal and independ- and the CFO participate in the Board meetings, and the ent auditors and follows up reporting related to General Counsel as the secretary of the Board. Other these plans Metso Executive Team members and other executives t Prepares for the election of independent auditors, participate in the meetings when needed. monitors the statutory auditing of the financial statements and consolidated financial statements, The Board’s agenda included issues on strategic assesses and reviews the auditors’ reports with the development of Metso’s business, choosing successors auditors, and assesses the quality and scope of the for the CEO and other top executives, preparing for the audit. Additionally, it assesses the independence of gradual market recovery, and development options for the auditors, particularly any impact on independ- Energy and Environmental Technology. ence arising from other services they offer to Metso The agenda also covered developing Metso’s global t Assesses together with the company’s management, presence, Metso’s HR processes, developing the services internal audit and an external auditor or other exter- business and business acquisitions and divestments, nal experts Metso’ financial reporting and reporting and regularly monitoring the financial development of methods Metso and its different businesses. t Approves the procurement principles for external The Board carried out a self-assessment of its auditing services and an external auditor’s annual performance. The assessment covered, among other auditing fees things, composition of the Board, efficiency and focus of t Maintains procedures enabling the receiving and the work, quality of information, material and systems processing of complaints related to accounting, in- provided to and used by the Board, and the level and ternal control and internal auditing, and the possible openness of discussions. The results of the assessment anonymous and confidential reporting of miscon- are used in developing the Board work. duct, fraud, and accounting and auditing issues The Annual General Meeting elected seven members to the Board. Jukka Viinanen was elected as The Audit Committee convenes at least four times per Chairman and Maija-Liisa Friman as Vice Chairman. Erkki year. It consists of the committee’s chairman and two Pehu-Lehtonen and Mikael von Frenckell were elected members, all of whom are elected by the Board from as new members of the Board. The Board members among the members independent of the company. re-elected were Christer Gardell, Yrjö Neuvo and Pia At least one of the members must be independent of Rudengren. Jukka Leppänen, the personnel representa- significant shareholders. The Audit Committee mem- tive, participated in the meetings as an invited expert. bers must have the qualifications necessary to perform All Board members were independent of the company the responsibilities of the committee and at least one and independent of Metso’s significant shareholders. member must have expertise specifically in accounting, The Board did not allocate to its members any specific bookkeeping or auditing. operational focus areas to monitor. The Board met ten times during , and attendance by its members was In addition to its regulatory duties, among other percent. Additionally, the Board made one unani- things, the Audit Committee discussed Metso’s financing mous resolution without convening. situation and the measures taken to reduce net working capital and reporting practices regarding non-recurring Board committees items. In addition the committee assessed Metso’s Our Board has two permanent committees: an Audit global tax situation and matters related to tax plan- Committee and a Remuneration and HR Committee. ning, reviewed an analysis on the success of business The Board elects the members of the committees from acquisitions in recent years and monitored the progress among its members at its annual assembly meeting and of global ERP projects. Additionally, the Audit Commit- monitors the activities of the committees. Both commit- tee reviewed the impairment tests performed on the tees have charters approved by the Board. intangible assets with indefinite useful lives. As a result of these tests, no impairment was recognized. The Audit Audit Committee The Board’s Audit Committee moni- Committee also reviewed Metso’s Corporate Govern- tors our financial reporting and prepares issues for the ance Statement. The Audit Committee did not use any Board related to the monitoring of our financial situa- external advisors. tion, financial reporting, auditing and risk management.
Metso Annual Report www.metso.com METSO CORPORATE GOVERNANCE STATEMENT 2010
The Audit Committee comprised Pia Rudengren Board member meeting participation (Chairman from March onwards), Maija-Liisa Friman Remuneration Audit and HR (Chairman until March ) and, from March onwards, Jan 1 – Dec 31, 2010 Board committee committee Erkki Pehu-Lehtonen (until March Arto Honkaniemi). Jukka Viinanen 10/10 9/9 All current members are independent of significant Jaakko Rauramo ¹⁾ 1/2 2/3 shareholders. The Audit Committee convened five times, Maija-Liisa Friman 10/10 5/5 and member attendance was percent. CFO Olli Mikael von Frenckell ²⁾ 8/8 6/6 Vaartimo was the secretary of the Audit Committee. Also Christer Gardell 10/10 8/9 CEO Jorma Eloranta and independent auditor Johan Arto Honkaniemi ³⁾ 2/2 1/1 Kronberg (PricewaterhouseCoopers Oy) participated in Yrjö Neuvo 10/10 9/9 the meetings. Erkki Pehu-Lehtonen ⁴⁾ 8/8 4/4 Pia Rudengren 10/10 5/5 Remuneration and HR Committee Among other things Jukka Leppänen the Remuneration and HR Committee: (personnel representative) 10/10 t Reviews and monitors the competitiveness of our remuneration and incentive systems and the develop- ¹⁾ Board member and Remuneration and HR Committee member ment of the Human Resources related issues such as until March 30. The Board convened 2 times before March 30 and the Remuneration and HR Committee 3 times. competence and talent development and successor ²⁾ Board member and Remuneration and HR Committee member planning of Metso’s senior management since March 30. The Board convened 8 times after March 30 and t Evaluates the performance and compensation of the the Remuneration and HR Committee 6 times. CEO ³⁾ Board member and Audit Committee member until March 30. The Board convened 2 times after March 30 and the Audit t Prepares and makes proposals to the Board for the Committee 1 time. compensation and benefits of the CEO ⁴⁾ Board member and Audit Committee member starting March t Makes proposals to the Board for the appointment 30. The Board convened 8 times after March 30 and the Audit of the Metso Executive Team members, based on the Committee 4 times. CEO’s preparations t Decides upon the remuneration and benefits of the Management structure Metso Executive Team members. The committee may President and CEO authorize its chairman to decide upon the remunera- Our President and CEO is responsible for the manage- tion and benefits of these officers. The CEO submits ment of Metso’s businesses in accordance with the Finn- the proposed remuneration and benefits of the other ish Companies Act, corporate governance rules and the officers reporting to the CEO to the committee chair- instructions given by the Board. The CEO is appointed man for approval – and, if necessary, dismissed – by the Board, and he re- ports to the Board about e.g. Metso’s financial situation, The committee convenes at least twice a year and con- business environment and other significant issues. The sists of the committee chairman and two members. All CEO prepares the matters on the agenda of the Board the members are independent of the company. The CEO and its committees and implements their decisions. The participates in the meetings, except when the agenda CEO guides and supervises the operations of Metso and includes items relating to him. its businesses. Additionally, the CEO acts as Chairman of the Metso Executive Team and Metso Executive Forum. The main tasks of the Remuneration and HR Com- mittee included preparing the appointment proposals for Metso Executive Team (MET) the successor to the CEO and for the members of Metso The CEO and other members appointed by the Board Executive Team, monitoring the realization of the constitute the Metso Executive Team. The MET assists performance bonus plan and planning of the plan as the CEO in the preparation of matters, such as busi- well as planning the share ownership plan for –. ness plans, strategy, policies and other matters of joint The committee used external advisors relating to the suc- importance. cession planning and has ensured that the advisors were not simultaneously advisors to the HR department or the Metso Executive Forum (MEF) operating management. In we established the Metso Executive Forum (MEF) The Remuneration and HR Committee comprised to operate alongside the MET. It consists of the members Jukka Viinanen (Chairman), Christer Gardell, Yrjö Neuvo of the MET and the heads of our most significant busi- and, from March onwards, Mikael von Frenckell. Alek- nesses, market areas and human resources. Its task is santeri Lebedeff, Senior Vice President, General Counsel, to assist our CEO in the execution and development was the secretary until March , after which Merja of our strategy. MEF focuses on dealing with the most Kamppari, Senior Vice President, HR, was the committee important Metso-wide development issues and sharing secretary. The Committee convened nine times during of knowledge within Metso. The Forum convenes two to the year, and member attendance was percent. Ad- four times per year to share best practices, to start and ditionally, it made two unanimous resolutions without follow up Metso-wide initiatives and to foster synergies convening. between businesses. MEF is appointed by MET.
www.metso.com Metso Annual Report METSO CORPORATE GOVERNANCE STATEMENT 2010
Business line and reporting segment management Team are: Matti Kähkönen (Chairman); Andrew Benko, The business operations of Metso are organized into President, Mining and Construction Technology; Perttu nine business lines, which in turn form the three report- Louhiluoto, President, Energy and Environmental Tech- ing segments. The business lines in the Mining and Con- nology; Pasi Laine, President, Paper and Fiber Technol- struction Technology reporting segment are Services ogy; Harri Nikunen, CFO, Merja Kamppari, SVP, HR; and as well as Equipment and Systems; in the Energy and Kalle Reponen, SVP, Strategy and M&A. Olli Vaartimo Environmental Technology reporting segment Power, and Bertel Langenskiöld reached their retirement age Automation and Recycling; and in the Paper and Fiber according to their executive contracts during autumn Technology reporting segment Paper, Fiber and Tissue, and will not continue in the MET from March , and Fabrics. The heads of Metso’s business lines are re- onwards. sponsible for the profitability and the daily management Celso Tacla, President of the South American opera- of their business lines, and they report to the Presidents tions of Metso’s Paper and Fiber Technology, was ap- of the respective segments. pointed as a new member of MEF in January . The heads of the reporting segments report to » SEE LINKS AND Metso’s CEO and provide him with information about the financial and operational performance and develop- Main features of the internal control ment of the operating environment of their respective and risk management systems pertaining to businesses. They are also responsible for the develop- the financial reporting process ment of the business line operations and strategy, for Our internal control mechanism seeks to ensure compli- implementing Metso’s plans, strategies and operating ance with applicable EU-laws, regulations and our oper- policies within the business lines, and for collaboration ating principles as well as the reliability of financial and between the business lines. operational reporting. Furthermore, the internal control mechanism seeks to safeguard our assets and to ensure Subsidiary boards overall effectiveness and efficiency of our operations to The subsidiary boards ensure that operations in all meet Metso’s strategic, operational and financial targets. Metso companies are managed in accordance with pre- Our internal control practices are aligned with Metso’s vailing laws, regulations and operating policies. Metso’s risk management process. The goal of risk management CEO, as chairman, and two to four other members ap- in Metso is to support our strategy and the achievement pointed by the CEO, generally from the Metso Executive of our objectives by anticipating and managing poten- Team, constitute the boards of the major subsidiaries. tial threats to and opportunities for our business. The The CEO decides on the possible additional responsibili- discussion below focuses on internal control and risk ties of the boards of holding and other similar compa- management related to the financial reporting process. nies belonging to Metso Group. » SEE LINK
The Metso Executive Team met eight times during Metso’s operating model of internal control and risk the year. Among its main tasks were strategic develop- management related to financial reporting is designed ment of Metso’s business and monitoring financial to provide sufficient assurance regarding the reliability development. MET also focused on development of of financial reporting and the preparation of financial Metso’s global presence, HR processes, development of statements in accordance with applicable laws and the services business, and acquisitions and divestments, regulations, generally accepted accounting principles and prepared Metso’s new vision, mission, management (IFRS) and other requirements for listed companies. The principles and values. The Metso Executive Team also overall system of internal control in Metso is based upon reviewed and updated Metso’s strategy for the Board the framework issued by the Committee of Sponsor- review. ing Organizations (COSO) and comprises five principal MEF’s agenda included issues related to Metso’s components of internal control: the control environ- strategy and communication of the strategy, leadership ment, risk assessment, control activities, information and development, sharing of best practices and monitoring communication, and monitoring. of the progress in Metso-wide themes and initiatives. MEF met four times during the year. Control environment Metso’s President and CEO was Jorma Eloranta. Matti Our Board of Directors bears the overall responsibility Kähkönen was appointed as Metso’s new President for the internal control over financial reporting. The and CEO from March , onwards, as Eloranta will Board has established a written formal working order retire. CFO Olli Vaartimo continued as Metso’s Execu- that clarifies the Board’s responsibilities and regulates tive Vice President until October , , after which the Board’s and its committees’ internal distribution of Matti Kähkönen has acted as Executive Vice President work. Furthermore, the Board has appointed an Audit and Deputy to CEO. In addition to them the continuing Committee, the primary task of which is to ensure that members of the Metso Executive Team were: Pasi Laine, established principles for financial reporting, risk man- Bertel Langenskiöld and Kalle Reponen. In December agement and internal control are adhered to and that new members were appointed for the Metso Executive appropriate relations are maintained with the company’s Team as of March , , and their areas of responsibility auditors. The responsibility for maintaining an effective were defined. The members of the new Metso Executive control environment and the ongoing work on internal
Metso Annual Report www.metso.com METSO CORPORATE GOVERNANCE STATEMENT 2010
control as regards the financial reporting is delegated to and management oversight controls in the organiza- LINKS & the CEO. Our internal audit function reports all relevant tions. Properly established internal control mechanisms NOTES issues to the Audit Committee and the CEO. The function safeguard us also from possible misconduct. Internal focuses on developing and enhancing internal control Control Standards list the control standards for selected Current informa- over the financial reporting in Metso by proactively con- business processes, which are sales and project busi- tion about Metso’s centrating on the internal control environment and by ness, procurement, payroll, inventory, treasury, financial management monitoring the effectiveness of the internal control. Our reporting, fixed assets and IT systems. For each of these www.metso.com/ management internal steering instruments for financial reporting pri- processes, the tasks that must be segregated are also marily comprise Metso’s Code of Conduct, Internal Con- listed. The units document the control activities in use Additional informa- trol Policy, Internal Control Standards, Treasury Policy for each of their respective key business process. In tion about Metso’s and our accounting policies and reporting instructions, Metso’s Compliance Program the effectiveness of the management, p. – which define the accounting and reporting rules, and monitoring procedures are assessed and tested of. The Metso’s definition of processes and minimum require- program also requires correction of any shortcomings. A more detailed ments for internal control over financial reporting. description of Metso’s Metso’s Compliance Program was completed by the risk management is presented on pages Risk assessment end of as originally planned in . In line with the – and on our Metso’s risk assessment as regards financial reporting program, the total of units were tested, the majority website aims to identify and evaluate the most significant risks of the most significant twice. After retesting, units www.metso.com/ affecting the financial reporting at the Group, report- fully passed the requirement level of Metso Compliance risks ing segment, unit, function and process levels. The Program’s controls. assessment of risk includes, for example, risks related to The program continues in . The most important fraud and unlawful activities, as well as the risk of loss or change is to integrate internal audit and compliance misappropriation of assets. The risk assessment results testing into a single package. In terms of control require- in control targets through which we seek to ensure ments, there will be more emphasis on the key business that the fundamental requirements placed on financial issues. Sustainability and worksite safety will be part of reporting are fulfilled. Information on the develop- the Metso Compliance Program requirements. Addition- ment of essential risk areas and the activities executed ally, the new systems adopted by Metso will enable and planned in these areas as well as the measures to significantly more effective control procedures, which mitigate them are communicated regularly to the Audit will also be taken into consideration in the program. Committee. Information and communication Control activities In order to secure an effective and efficient internal We have established an internal Metso Compliance control environment, we seek to ensure that Metso’s Program to ensure the correctness and credibility of our internal and external communication is open, transpar- financial reporting and compliance with our govern- ent, accurate and timely. Information regarding internal ance principles in all our units. Its purpose is to create steering instruments for financial reporting, i.e. account- a coherent control environment at Metso by imple- ing principles, financial reporting instructions and the menting proper, internal control principles for different disclosure policy are available on Metso’s intranet. We business processes and to share internal control-related arrange training for our personnel regarding internal best practices. The program stems from the listing of control issues and tools. Metso’s CFO and the head of Metso’s share in the United States until and the internal audit report the results of the work on internal Sarbanes-Oxley Act (SOX) requirements we complied control as a standing item on the agenda of the Audit with in conjunction with the listing. The Metso Compli- Committee. The results of the Audit Committee’s work ance Program affects all our units and is more flexible in the form of observations, recommendations and pro- and in some respects more comprehensive than SOX posed decisions and measures are reported to the Board reporting. In line with the SOX requirements, our control after every Audit Committee meeting. standards define the basic level for internal controls that all units must achieve. Our internal audit function, Monitoring assisted by trained Metso testers from different parts The effectiveness of internal control related to financial of our organization, is responsible for the testing of the reporting is monitored by the Board of Directors, the units. Unlike with the SOX system, independent auditors Audit Committee, the CEO, Group management, internal do not issue a separate statement on the functionality audit, and the management of the reporting segments of our internal controls, although in their work they do and Group companies. Monitoring includes the follow widely utilize the documentation created in conjunction up of monthly financial reports, review of the rolling with the Metso Compliance Program. estimates and plans, as well as reports from internal Our Internal Control Standards are designed to en- audit and quarterly reports by independent auditors. sure that local management in every Metso unit designs Our internal audit annually assesses the effectiveness of and effectively implements the most important monitor- Metso’s operations and the adequacy of risk manage- ing procedures related to selected key financial and ment and reports the risks and weaknesses related to business administration processes in all Metso units. This the internal control processes. Internal audit compiles is complemented with proper segregation of key duties an annual audit plan, the status and findings of which it www.metso.com Metso Annual Report METSO CORPORATE GOVERNANCE STATEMENT 2010
regularly reports to Metso management, auditors and other management or, if necessary, directly to internal the Audit Committee. Furthermore, our internal audit audit. Additionally, Metso employees and partners can and independent auditor meet regularly to coordinate report suspicions of financial misconduct confidentially the monitoring efforts. via the Whistleblower channel, which is maintained by an independent party. The report can be submitted in In monitoring we focused on the management of several languages via the Internet, by phone or by email, net working capital, cost structure competitiveness and and anonymously if necessary. Suspected misconduct the functioning of the new ERP systems. is investigated immediately and confidentially. Internal audit decides on how the matter will be investigated Compliance with laws and code of conduct and reports the suspicion to the Audit Committee. The In all our operations we seek to comply with applicable legal affairs and HR functions together implement any laws and statutes as well as generally accepted practices. measures consequential to the misconduct. Additionally, our operations are guided by Metso’s Code of Conduct, internal policies and guidelines as well as We received eight reports of suspected financial values. Our Code of Conduct describes Metso’s corporate misconduct via the Whistleblower channel. Additionally, culture, commonly accepted practices and commitment internal audit received three direct contacts. Upon more to compliance with laws and regulations. They support careful investigation, one of the suspicions was classifi- Metso’s responsible operations, sustainability and our able as misconduct. There were no cases of misconduct success. The foundation of our Code of Conduct is the revealed in conjunction with internal audits. The cases UN’s Universal Declaration of Human Rights, the UN’s of misconduct were reviewed by the Audit Committee Global Compact initiative, which we have endorsed, and in line with our guidelines on reporting misconduct. The the International Labor Organization’s (ILO) declaration cases did not have significant impact on the financial on Fundamental Principles and Rights at Work. When results we reported. applicable, the OECD’s Guidelines for Multinational En- terprises are also incorporated into our Code of Conduct. Auditors We require that each one of our employees is familiar According to the Articles of Association, Metso has one with the legislation and operating guidelines of their auditor, which must be a firm of public accountants cer- own areas of responsibility. Business management is tified by the Finnish Central Chamber of Commerce. The responsible for the internal control of the operations Board’s Audit Committee prepares the auditor selection in their respective sector. In conjunction with internal process. Since the policy when electing the auditor audits, we strive to ensure that everyone in the unit be- has been that the aggregate duration of the consecu- ing audited is familiar with and compliant with the laws, tive terms of a principal auditor may not exceed seven regulations and principles relating to their own work. years. This means that Metso’s principal auditor Johan In addition to Metso’s management, the due course of Kronberg can act in that capacity no later than for the operations is monitored by the Board’s Audit Commit- audit of financial period . There are no term limits tee, which reports any misconduct to the Board. regarding the duration of the auditing firm. The auditor’s statutory obligation is to audit the company’s account- Internal audit ing, the Board of Directors’ report, financial statements Metso’s internal audit assesses the efficiency and and administration for the financial year. The parent appropriateness of our operations and examines the company’s auditor must also audit the consolidated functioning of internal controls. It seeks to ensure the financial statements and other mutual relationships correctness of financial and operational reporting, between Group companies. compliance with applicable laws and regulations, and In conjunction with our annual financial statements, proper management of the company’s assets. In we the auditor gives Metso’s shareholders an Auditor’s included certain controls related to occupational health Report as required by law. The auditor reports primarily and safety and environmental aspects within the sphere via the Audit Committee and at least once a year to the of internal audit. Board. The Audit Committee evaluates the performance Additionally, internal audit proactively encourages and services of the independent auditors each year and the development of risk management in Metso’s various decides if there is a need to arrange an open tender operations. The head of internal audit reports adminis- process. tratively to the CFO, but has direct access also to the CEO and to the chairman of the Audit Committee. PricewaterhouseCoopers Oy, Authorized Public Ac- » SEE LINK 1 countants, has been our auditor since . In , the principal auditor was Johan Kronberg, who has been the Reporting suspected financial misconduct company’s principal auditor since . Our auditor was Our guidelines on the prevention of financial mis- last time put out to tender in . The fees related to conduct define how suspected misconduct should auditing work in amounted to EUR . million. be reported, how it is investigated and how the issue proceeds. Metso employees are encouraged to report suspected misconduct to their own supervisors, to
Metso Annual Report www.metso.com METSO CORPORATE GOVERNANCE STATEMENT 2010
Audit fees of their annual remuneration to buy Metso shares. The LINKS & EUR million 2008 2009 2010 Board members acquired the shares from the market NOTES Audit 2.7 2.5 2.5 within two weeks of publication of the first-quarter Tax services 1.8 1.7 2.0 interim report on April , . Altogether , shares Internal Audit’s Other services 1.1 0.8 1.0 were acquired, which is . percent of Metso’s total Charter www.metso.com/ Total 5.6 5.0 5.5 share capital. There are no special terms or conditions associated with owning these shares. Shares acquired in audit this conjunction by individual Board members are listed Ownership and Insiders in the table below. trading information We comply with the NASDAQ OMX Helsinki Guidelines of Metso’s insiders www.metso.com/ for Insiders. Our permanent insiders are not permitted Board member Number of shares insiders to trade in Metso’s issued securities during the days Jukka Viinanen 1,377 immediately prior to the publication of a Metso interim Maija-Liisa Friman 838 Metso’s corporate go- review or financial statements release. The ownership of Mikael von Frenckell 673 vernance principles www.metso.com/ Metso securities by statutory insiders (insiders subject Christer Gardell 673 governance to the disclosure obligation) and their interest parties Yrjö Neuvo 673 is public. Statutory insiders include the Chairman, Vice Erkki Pehu-Lehtonen 673 Detailed information Chairman and members of the Board of Directors, the Pia Rudengren 673 about Board member CEO and his deputy, the principally responsible auditor remuneration is Total 5,580 available in the Notes of a firm of public accountants and Executive Team to the Financial State- members. Additionally, Metso also has permanent » SEE LINKS 2 AND 4 ments, p. – company-specific insiders and separately identified project-specific insiders whose securities ownership The serving members of our Board, none of whom are is not public. We update the register of our statutory employees of Metso, were paid cash compensation insiders in the Euroclear Finland Ltd’s Sire system, where totaling EUR , for the financial year that ended information on the ownership of securities can be ob- December , . The Board members are not covered tained directly from the book-entry system. by Metso’s bonus plans, share-based incentive schemes » SEE LINKS 2 AND 3 or pension plans.
Management remuneration Decision making process and main principles of The objective of remuneration at Metso is to encourage remuneration of the CEO and other Executive Team our employees as individuals and as team members to members achieve the set financial and operational targets and The Board of Directors decides on the remuneration, to strive for excellent performance. Remuneration is benefits and other terms of employment of the Presi- aligned with Metso’s financial performance, internal and dent and CEO. The Board’s Remuneration and HR Com- external references and observing remuneration levels mittee decides on the compensation and benefits of for similar positions among peer companies. Metso’s the other Executive Team members based on the CEO’s remuneration package for executives includes a com- proposal and general principles approved by the Board. petitive salary and employee benefits according to local The remuneration of Executive Team members, market practices, short-term incentives based on pre- including the CEO, comprises a monthly total salary defined annual performance indicators and long-term (including monthly salary and customary fringe benefits incentives that align the interests of the key executives such as a car, a mobile phone and, in some cases, an and shareholders. apartment) as well as both short- and long-term incen- tives. Short-term incentives are annual performance Remuneration of the Board bonuses decided by the Board. As long-term incentives, The Annual General Meeting decides on the remunera- the Executive Team members are included in share own- tion to the members of the Board for one term of office ership plans that are decided and implemented by the at a time. The Annual General Meeting in decided to Board and for which share repurchase and share issue keep the fees paid to Board members unchanged, and authorizations are obtained from the Annual General the annual fees are: Meeting. There are no options outstanding or available t Chairman of the Board EUR , from any of Metso’s prior option programs. Currently, t Vice Chairman of the Board EUR , we do not have guidelines on what portion of the an- t Other Board members EUR , nual total base salary executives should invest in Metso shares. In addition, a fee of EUR per meeting is paid to all Additionally, management benefits include a supple- Board members for each Board and committee meeting mentary defined contribution pension plan for all mem- they attended. Compensation for travel expenses and bers of the new Executive Team (as of March , ) with daily allowances is paid in accordance with Metso’s the exception of President and CEO Matti Kähkönen, travel policy. who has a defined benefit pension plan. President and Based on the decision of the Annual General Meet- CEO Jorma Eloranta had a company-paid supplementary ing in , the Board members have used percent defined benefit pension plan, which enabled him to www.metso.com Metso Annual Report METSO CORPORATE GOVERNANCE STATEMENT 2010
retire at the age of . The Board has outlined that no At the beginning of the earnings period, the new supplementary defined benefit pension plans will participants invested in , Metso shares (initial be introduced. investment) and the rewards that can be paid on the basis of the plan correspond to a maximum total of Performance bonuses , Metso shares. The reward from the plan consists The Board annually confirms the terms and targets of grants of the base matching shares and performance of our performance bonuses. The amount of bonus shares. The amount of base matching shares is based on payment, if any, is based on achieving set financial Metso share price development and it can be . or . performance targets, such as EBITA and cash flow, of times the number of shares in the initial investment. The Metso and/or the business in question. In addition to potential reward in the form of performance shares is these, also individual and/or team targets are used. based on the combination of Metso’s Total Shareholder The Remuneration and HR Committee evaluates the Return (TSR) over the three-year period and on the achievement of the predefined targets of the CEO and annual earnings per share (EPS) in –. If the TSR other Executive Team members. For the CEO and for is zero or negative over the three-year period, no perfor- other Executive Team members, the maximum annual mance shares shall be distributed. The maximum ratio of performance bonus is currently – percent of their the performance shares for the CEO is six, for the other annual total salary. MET members five and for other participants four times of the number of shares in the initial investment. In ad- Share-based incentive plans dition to meeting the performance targets, receiving the The Board decides and implements Metso’s share-based reward requires that the participant holds the initial in- incentive plans, which are part of the remuneration vestment for the entire earning period and is employed and commitment program for Metso management. by Metso until the reward payment. The amount of the The purpose of the plans is to align the goals of Metso’s possible reward earned will be determined after the shareholders and management to enhance the value financial statements are published. The rewards will be of the company. The plans also aim to ensure commit- paid in Metso shares in the first half of . In coun- ment of management and to offer them a competitive, tries where the employer has a payroll tax withholding ownership-based reward scheme. For years – obligation, Metso can pay a maximum of percent of we implemented share-based incentive plans in which the reward in cash instead of shares. Any shares earned Metso shares were allocated to the participants based on must be held for a minimum of one year after the reward achieving targets set for operating profit. Now we have payment. The shares for the plan are acquired through share ownership plans in place that require participants public trading, and therefore the incentive plan will have also to make a personal investment in Metso shares. no diluting effect on the share value.
Share Ownership Plan 2009–2011 In October , the Share Ownership Plan 2010–2012 In October the Board approved a share-based incentive plan for our Board approved a similar share-based incentive plan for management, Metso Share Ownership Plan –. management, Metso Share Ownership Plan –. The plan’s purpose is to commit our CEO, MET members The plan includes one three-year earning period, which and management to our company and to enhance its began on January , and will end on December , value. Participation in the plan requires a personal in- . The plan was initially targeted to about persons vestment in Metso shares. The plan includes one three- in management position, of which were participat- year earning period, which began on January , ing at the end of . The participants have invested in and will end on December , . The Board targeted , shares (initial investment) and the rewards that the plan initially to about persons in management can be paid on the basis of the plan correspond to a position, of which were participating at the end of maximum total of , Metso shares. The criteria for . Members of the Executive Team may receive a the reward payment and the terms and conditions of the maximum of , shares as share rewards. plan are essentially the same as in the plan for – Renumeration paid to CEO, Deputy to CEO and other Executive Team members Performance bonus paid in Fringe Share-based 2010 2009 2008 EUR Annual salary 2010 benefits payment Total Total Total President and CEO 550,790 263,752 12,812 - 827,354 , 1,046,374 Executive Vice President and Deputy to CEO 396,288 143,722 21,779 - 561,789 , 745,975 Other Executive Team members 1,364,759 322,783 56,817 - 1,744,359 ,, 2,307,941 Total 2,311,837 730,257 91,408 - 3,133,502 ,, 4,100,290 Olli Vaartimo until September 30, 2010 and Matti Kähkönen from October 1, 2010 onwards. Additionally, in 2011 a bonus of about EUR 253,000 will be paid to President and CEO Jorma Eloranta and an estimated bonus of about EUR 192,000 to Executive Vice President Matti Kähkönen based on year 2010 performance. Metso has subscribed pension plans for senior management for retirement at the age of 60–63, the beneficiaries include some members of the Metso Executive Team. For the years ended December 31, 2008, 2009 and 2010, the pension insurance premium payments totaled approximately EUR 2.3 million, EUR 3.0 million and EUR 3.0 million, respectively.
Metso Annual Report www.metso.com METSO CORPORATE GOVERNANCE STATEMENT 2010
described above. The amount of possible reward earned Remuneration of the CEO LINKS & will be determined after the financial statements Current CEO until February 28, 2011 In addition to his NOTES are published. The rewards will be paid in Metso shares annual total salary, the compensation paid to the CEO and possibly partly in cash in the first half of . The Jorma Eloranta includes a performance bonus (maxi- Current information shares are acquired through public trading, and there- mum percent) that is tied to Metso’s EBITA and cash on management’s fore the incentive plan will have no diluting effect on the conversion, and to personal targets possibly set for him ownership www.metso.com/ share value. Members of the Executive Team may by the Board. He is also included in all of Metso’s share insiders receive a maximum of , shares as share rewards. ownership plans and has a supplementary pension plan. The Board monitors and evaluates the perfor- Read more about Share Ownership Plan 2011-2013 In September , mance of the CEO and decides upon his remuneration our share ownership the Board approved a third, similar share-based incen- and benefits. plan: note to the financial statements tive plan for management, Metso Share Ownership Plan According to his executive contract, Jorma Eloranta on pages – –. The plan includes one three-year earning is eligible to retire at the age of , and he will retire in period, which began on January , and will end on accordance with the contract at the end of February More detailed December , . The plan was initially targeted to upon turning on February , . His retirement pen- information about the President and CEO’s about persons in management position, of which sion is percent of his pensionable compensation dur- and other Executive had confirmed their participation by the end of ing the past four or ten service years, whichever results Team members’ and committed themselves to investing in , shares in a greater amount. Eloranta’s supplementary pension compensation and and the rewards that can be paid on the basis of the plan is benefit-based. benefits is available in the Notes to the plan correspond to a maximum total of , Metso The CEO’s monthly total salary was increased by . Financial Statements, shares. Members of the new Metso Executive Team (as percent in . The amount of his performance bonus p. – of March) may receive a maximum of , shares as a paid in corresponds to approximately six months’ share rewards. The criteria for the reward payment and total salary. The amount of his performance bonus to be Metso’s corporate governance the terms and conditions of the plan are essentially the paid in will correspond to approximately six months’ www.metso.com/ same as in the plans for – and for – total salary. governance described above. The amount of possible reward earned » SEE LINKS 1 AND 3 will be determined after the financial statements are published. The rewards will be paid in Metso shares CEO as of March 1, 2011 Matti Kähkönen assumed and possibly partly in cash in the first half of . The the duties of Metso CEO on March , . As CEO, his shares are acquired through public trading, and there- monthly total salary is , euros, including a company fore the incentive plan will have no diluting effect on the car and a mobile phone as fringe benefits. The CEO is share value. entitled to participate in Metso’s short- and long-term in- The participant’s annual reward payments (valued at centive programs according to the respective terms and the share’s market price at the transfer date) from any or conditions of those programs. The terms and conditions all share ownership plans of Metso cannot exceed in any are decided by the Board. Matti Kähkönen’s retirement year the participant’s annual total salary, defined as tax- age is . The remuneration of Matti Kähkönen is de- able annual gross income without bonus and long-term scribed in more detail in the following table. incentives, multiplied by . at the time of matching. SEE LINK 1
Employment terms and conditions of the new President and CEO Matti Kähkönen as of March 1, 2011
Base salary and fringe benefits Monthly total salary EUR 41,100 including monthly salary and fringe benefits (company car and mobile phone).
Short-term incentive (annual bonus) The annual bonus can be earned according to the criteria approve by the Board. The maximum bonus is 60 percent of annual total salary.
Long-term incentive According to Metso’s Share Ownership Plans. Annual reward payments cannot exceed in any year the annual total salary, defined as taxable annual gross income without annual bonus and long-term incentives multiplied by 1.5.
Pension Retirement age is 63 years. Kähkönen has a supplementary defined benefit pension plan. His total pension is 60 percent of average monthly earnings during the past four full calendar years prior to the retirement, adjusted with pension index. If he transfers to another position inside Metso after having turned 60 years, the pension is defined based on the four years’ earnings before the transfer.
Termination of assignment Notice period on both parties six months. Severance pay (if the company terminates the agree- ment) is six months’ notice period compensation plus severance pay corresponding to the last monthly total salary multiplied by 18. www.metso.com Metso Annual Report METSO CORPORATE GOVERNANCE STATEMENT 2010 Board of Directors
Jukka Viinanen Yrjö Neuvo
Maija-Liisa Friman Jukka Leppänen
Jukka Viinanen Maija-Liisa Friman Christer Gardell Yrjö Neuvo Born . Born . Born . Born . Finnish citizen. Finnish citizen. Swedish citizen. Finnish citizen. Main occupation: Main occupation: Main occupation: Main occupation: Chairman of the Board. Board professional. CEO. Professor. MSc. Chemical Engineering. MSc. Chemical Engineering. MBA. Ph.D. Cornell University. Independent of the company and of Independent of the company and of Independent of the company, and of Independent of the company and of significant shareholders. significant shareholders. significant shareholders. significant shareholders. Board member since . Board member since . Metso Board member since . Metso Board member since . Chairman of Metso´s Board since Vice Chairman of Metso Board since Member of Remuneration and HR Member of Remuneration and HR . Chairman of Remuneration and . Audit Committee member. Committee. Committee. HR Committee. Metso shares, on Dec 31, 2010: Metso shares, on Dec 31, 2010: Metso shares, on Dec 31, 2010: Metso shares, on Dec 31, 2010: , , , Key experience: Key experience: Key experience: Key experience: President and CEO, various compa- Founder and Managing Partner, Chief Technology Officer, member of President and CEO, Orion Corporation nies – (Aspocomp Group Cevian Capital –; CEO, AB Custos Group Executive Board, Nokia Corpo- –; various managerial posi- Oyj, Vattenfall Oy, Gyproc Oy). –; Partner, Nordic Capital ration –; various professo- tions, Neste Corporation –, SEE LINK 1 and McKinsey & Company. rial positions in different universities. President and CEO and Vice Chairman SEE LINK 1 SEE LINK 1 of the Board –. SEE LINK 1
Metso Annual Report www.metso.com METSO CORPORATE GOVERNANCE STATEMENT 2010
LINKS & NOTES
Current information on Metso’s Board of Directors www.metso.com/ management
Mikael von Frenckell Erkki Pehu-Lehtonen
Pia Rudengren Christer Gardell
REPRESENTATIVE OF PERSONNEL Pia Rudengren Mikael von Frenckell Erkki Pehu-Lehtonen Jukka Leppänen Born . Born . Born . Born . Swedish citizen. Finnish citizen. Finnish citizen. Finnish citizen. Main occupation: Main occupation: Main occupation: - Main occupation: Board professional. Chairman of the Board. MSc. Mechanical Engineering Testing Engineer. MSc. Business Administration and MSc. Soc. Independent of the company and of Personnel representative in Metso Economics. Independent of the company and of significant shareholders. Board. Participates in Metso Board Independent of the company and of significant shareholders. Metso Board member since . meetings as an invited expert with significant shareholders. Metso Board member since . Member of Audit Committee. no voting rights; term of office is the Metso Board member since . Member of Remuneration and HR Metso shares, on Dec 31, 2010: same as Board members’ term. Chairman of Audit Committee. Committee. , Metso shares, on Dec 31, 2010: Metso shares, on Dec 31, 2010: Metso shares, on Dec 31, 2010: Key experience: , President and CEO, Pöyry Plc Key experience: Key experience: Key experience: –; other managerial posi- Metso employee since . Shop CFO, (member of management team Various managerial positions, Union tions, Pöyry Plc, Neles-Jamesbury steward for senior clerical employees –) Investor AB –; Bank of Finland –; various Inc., Valmet Paper Machinery Inc. and industrial safety delegate. Executive Vice President, W Capital managerial positions (incl. Sponsor SEE LINK 1 SEE LINK 1 Management AB –; Board Oy, Ekström Oy). Professional –. SEE LINK 1 SEE LINK 1
www.metso.com Metso Annual Report METSO CORPORATE GOVERNANCE STATEMENT 2010 Executive Team
Group Head Office President and CEO Jorma Eloranta/Matti Kähkönen Communications Jussi Ollila Legal Matters Aleksanteri Lebedeff
Human Resources Merja Kamppari
CFO Olli Vaartimo/Harri Nikunen Finance Reijo Kostiainen Information Technology Pauli Nuutinen Internal Audit Jarmo Kääriäinen LINKS & Investor Relations Johanna Henttonen NOTES Metso Shared Services Juha Seppälä Treasury Pekka Hölttä Current information on Metso Executive Team Strategy and Corporate Development www.metso.com/management Kalle Reponen Indirect Procurement Jouni Peltomäki Stakeholder Relations and Trade Policy Jukka Seppälä Sustainability and Technology Development Lennart Ohlsson
Metso Annual Report www.metso.com METSO CORPORATE GOVERNANCE STATEMENT 2010
Matti Kähkönen 3 Andrew Benko 2 Perttu Louhiluoto 1 Born . Born . Born . As of Finnish citizen. U.S. citizen. Finnish citizen. MSc. Engineering. MSc. Engineering. Master of Laws, MSc. Economics. Mar 1, 2011 As of March , President and As of March , President, Mining As of March , President, Energy CEO, Metso Corporation. Cur- and Construction Technology, Metso and Environmental Technology. Cur- rently Executive Vice President and Corporation. Currently President, rently Senior Vice President, EMEA Deputy to the President and CEO, Equipment and Systems business market area, Mining and Construc- Vice Chairman of Executive Team line, Mining and Construction tion Technology. and President, Mining and Construc- Technology. Metso shares, Dec 31, 2010: tion Technology. Joined Metso in Metso shares, Dec 31, 2010: , . Member of Executive Team , Key experience: since . Key experience: Senior Vice President, Operational Metso shares, Dec 31, 2010: President: Metso´s Mining and Excellence, Metso Corporation , Minerals Processing business lines –; Partner, McKinsey & Key experience: –, Minerals Processing, Company (–), various posi- President: Metso Minerals – Svedala –, Grinding Divi- tions –. , Metso Automation –. sion, Svedala –. SEE LINK 1 SEE LINK 1 SEE LINK 1
Pasi Laine 6 Harri Nikunen 5 Merja Kamppari 4 Kalle Reponen 9 Born . Born . Born . Born . Finnish citizen. Finnish citizen. Finnish citizen. Finnish citizen. MSc. Engineering. BA, Finance and Business Adminis- MSc. Economics. MSc. Economics As of March , Executive Vice tration. As of March , member of Senior Vice President, Strategy and President, Deputy to CEO, Metso Cor- As of March , Metso Group’s Metso Executive Team. Senior Vice M&A. Joined Metso in . Member poration, President, Paper and Fiber Chief Financial Officer. Currently President, Human Resources, Metso of Executive Team since . Technology. Currently President, En- Senior Vice President, Finance, Paper Group. Metso shares, Dec 31, 2010: ergy and Environmental Technology. and Fiber Technology. Metso shares, Dec 31, 2010: , Joined Metso in . Member of the Metso shares, Dec 31, 2010: , Key experience: Executive Team since . , Key experience: Partner, MCF Corporate Finance Metso shares, Dec 31, 2010: Key experience: Various top management HR- –; Head of Capital Goods, , Various senior management positions, Nokia Networks and Nokia Nordea Corporate Finance – Key experience: positions, Metso –; various Siemens Networks –. ; various positions, Wärtsilä President: Metso Automation finance management positions, SEE LINK 1 Corporation –. –, Metso Automation’s Field Rosenlew Group –. SEE LINK 1 Systems business line –. SEE LINK 1 SEE LINK 1
Jorma Eloranta 7 Olli Vaartimo 8 Bertel Langenskiöld 10 Born . Born . Born . Until Finnish citizen. Finnish citizen. Finnish citizen. Main occupation: Main occupation: Main occupation: Feb 28, 2011 President and CEO. CFO and Member of the Executive President, Paper and Fiber Technol- MSc. Technology. Team. ogy and Member of the Executive Joined Metso in . Chairman of MSc. Economics and Business Team. Metso Executive Team since . Administration. MSc. Engineering. Chairman of Metso Executive Forum Joined the company in . Member Joined the company in . since . of Metso Executive Team since . Member of Metso Executive Team Metso shares, Dec 31, 2010: Executive Vice President and CFO since . , –. Metso shares, Dec, 31 2010: Key experience: Metso shares, Dec 31, 2010: , President and CEO: Kvaerner , Key experience: Masa-Yards Inc. –, Patria Key experience: President: Metso Paper –, Industries Group –, Finvest Acting President and CEO, Metso Metso Paper’s Fiber Business Line Ltd –. Deputy Chief Execu- Corporation /–/, Presi- –, Metso Minerals – tive, Finvest Group and Jaakko Pöyry dent, Metso Minerals –, , Fiskars Corporation –, Group . Executive Vice President, Rauma Tampella Power/Kvaerner Pulping, SEE LINK 1 Corporation –. Power Division –. SEE LINK 1 SEE LINK 1
www.metso.com Metso Annual Report METSO CORPORATE GOVERNANCE STATEMENT 2010
Metso Executive Forum Dec 31, 2010
First row left to right: Andrew Benko, João Ney Colagrossi, Jorma Eloranta, Per-Åke Färnstrand. Second row left to right: Ari Harmaala, Merja Kamppari, Matti Kähkönen, Pasi Laine. Third row left to right: Bertel Langen- skiöld, Hannu Mälkiä, Lennart Ohlsson, Kalle Reponen. Fourth row left to right: Sudhir Srivastava, Celso Tacla, Olli Vaartimo.
João Ney Colagrossi Per-Åke Färnstrand Ari Harmaala Hannu Mälkiä Born Born Born Born President, Services business line President, Fiber business line President of Metso operations in President, Paper business line MSc. Engineering, MSc. Economics MSc. Engineering China MSc. Engineering Brazilian citizen Swedish citizen Engineer (grad) Finnish citizen Joined the company in Joined the company in Finnish citizen Joined the company in Joined the company in
Lennart Ohlsson Sudhir Srivastava Celso Tacla Born Born Born Senior Vice President, Sustainability Senior Vice President, Asia-Pacific, President of the South American operations and Technology Development Mining and Construction Technology of Metso´s Paper and Fiber Technology MSc. Engineering Engineer Engineer (grad), Chemical Engineering and Swedish citizen Indian citizen MSc. Business Administration Joined the company in Joined the company in Brazilian citizen Joined the company in
Metso Annual Report www.metso.com ASSURANCE REPORT Independent Assurance Report Translation from the Finnish Original
To the management of Metso Corporation Our work consisted of, amongst others, the following We have been engaged by the Management of Metso procedures: Corporation to perform a limited assurance engagement t Making interviews with senior management of Metso on the information on economic, social and environ- Corporation. mental responsibility disclosed in Metso Corporation’s t Assessing how Metso Group employees apply Metso annual sustainability reporting for the period of January Corporation’s reporting guidelines and procedures. , to December , . The annual sustainabil- t Visiting Metso Corporation’s Head Office as well as six ity reporting (hereinafter “Sustainability Reporting”) production units in Brazil, China, Finland, Germany consists of sustainability information disclosed in the and Czech Republic. Annual Report of Metso Corporation and the t Interviewing employees responsible for collection Metso Sustainability Results online publication, as and reporting of the information presented in the disclosed on Metso’s website. The scope of the Sustain- Sustainability Reporting at Metso Group level and at ability Reporting covers the entire Metso Group. the different production units where our visits took place. Management’s responsibility t Inspection of relevant documents and systems for The Management of Metso Corporation is responsible gathering, analyzing and aggregating the informa- for preparing the Sustainability Reporting in accordance tion presented in the Sustainability Reporting as well with the Reporting criteria as set out in Metso Corpora- as tests on a sample basis. tion’s own documented standards and the G Guidelines t Assessing the data consolidation process of the of the Global Reporting Initiative. information presented in the Sustainability Reporting at Metso Group level. Practitioner’s responsibility Our responsibility is to express a conclusion on the Sus- Conclusion tainability Reporting based on our work performed. Our Based on our limited assurance engagement, nothing assurance report has been made in accordance with the has come to our attention that causes us to believe that terms of our engagement. We do not accept, or assume the Sustainability Reporting has not been prepared, in all responsibility to anyone else, except to Metso Corpora- material respects, in accordance with the Reporting cri- tion for our work, for this report, or for the conclusions teria. Our assurance report should be read in conjunction that we have reached. with the inherent limitations of accuracy and complete- We conducted our work in accordance with the In- ness for sustainability information. This independent ternational Standard on Assurance Engagements (ISAE) assurance report should not be used on its own as a basis ‘Assurance Engagements Other than Audits or for interpreting Metso Corporation’s performance in rela- Reviews of Historical Financial Information’. This Stand- tion to its principles of corporate responsibility. ard requires that we comply with ethical requirements and plan and perform the assurance engagement to Helsinki, February , obtain limited assurance whether any matters come to our attention that cause us to believe that the Sustain- PricewaterhouseCoopers Oy ability Reporting has not been prepared, in all material respects, in accordance with the Reporting criteria. We have not been engaged to provide assurance on amounts or other disclosures relating to the prior report- Johan Kronberg Sirpa Juutinen ing periods presented in the Sustainability Reporting. Authorised Public Accountant Partner In a limited assurance engagement the evidence- Sustainability & gathering procedures are more limited than for a Climate Change reasonable assurance engagement, and therefore less assurance is obtained than in a reasonable assurance en- gagement. An assurance engagement involves perform- ing procedures to obtain evidence about the amounts and other disclosures in the Sustainability Reporting. The procedures selected depend on the practitioner’s judgment, including an assessment of the risks of mate- rial misstatement of the Sustainability Reporting.
www.metso.com Metso Annual Report RISKS AND RISK MANAGEMENT Risk management
Risk management is an integral part of our Regardless if we had prepared ourselves for it, the threats may materialize, and have a significant operational management: we anticipate oppor- adverse impact on our business, financial situation and tunities for and threats to our operations and operating result or on the value of our shares and other securities. We aim to reduce the financial impacts of thereby support our strategy and the achieve- any adverse events and to restore operations to normal ment of our objectives. Effective risk manage- as quickly as possible. In addition, we have prepared for possible risks through insurance schemes. We estimate ment ensures continuity of our operations also that our overall level of risks is currently at a manage- in changing circumstances. In 2010 the global able level in proportion to the scope of our operations economic recovery downsized the threats re- and to the practical measures available. lated to our operating environment. However, Risk management responsibilities Our risk management principles are approved by Metso the budget deficits of several European coun- Board of Directors. The Board also oversees that the tries and the United States, the growing infla- planning, information and control systems in place for risk management are sufficient and support our business tion pressures, particularly in emerging markets, objectives. The Board’s Audit Committee assesses the and the fluctuations in currency exchange rates adequacy of risk management and ensures that it is con- sistent with the requirements by our operating environ- fueled the uncertainty in the global economy. ment and our corporate governance principles. The Risk Management Team is comprised of rep- resentatives of our businesses and our CFO. The team annually confirms the risk management programs of our businesses and ensures that they focus on relevant We define risks as uncertainties, which, if materialized, issues in terms of our operations. The Group’s Risk can either positively or negatively impact our chances Management function oversees the implementation of achieving our goals. Uncertainties can be caused by of the risk management program and principles and unexpected events or changes in circumstances. We develops common risk management procedures and assess the significance of a risk as a combination of prob- guidelines. Business management is responsible for ability and consequences of the occurrence. By taking identifying and managing risks in their respective area calculated strategic-, operational- or finance-related as part of their operations. Group Treasury manages our risks, we can strengthen our business opportunities. In financial risks and secures the availability of equity and contrast, hazard risks that materialize have a negative debt financing with competitive terms. Group Treasury impact on our operations. We can manage some risks on works in cooperation with the businesses and centrally our own, while other risks are beyond our control, and manages external funding. Additionally, it is responsible we can only prepare for them. for managing financial assets and for hedging related to Our risk management focus is on proactive measures our financial risks. and securing our operations, and on limiting adverse impacts and utilizing opportunities. We map and assess Risk management focus areas and risks systematically and adjust our operations when development needed. In mapping risks, which is part of our annual The recovery of the global economy downsized the strategy process, we analyze the potential positive and threats related to our operating environment and negative impacts on our business and financial position financing in . The budget deficits in many European during the assessment year and on the three subse- countries and in the United States as well as fluctuations quent years. in currency exchange rates fueled uncertainty, but de-
Metso Annual Report www.metso.com RISKS AND RISK MANAGEMENT
mand in the emerging markets clearly grew. We estimate LINKS & that the gradual recovery will continue in most of our NOTES customer industries this year. MOST SIGNIFICANT We estimate that the high share of our net sales de- A more detailed rived from services and emerging markets will diminish THREATS AND description of Metso’s the negative impacts of potential market uncertainties. risk management We evaluate our risk management practices based is presented on our OPPORTUNITIES website on the new ISO standard for risk management. www. metso.com/ The standard sets general content requirements and The most significant factors creating threats and risks practices for the comprehensive risk management of opportunities for Metso based on the risk companies. Our risk management fulfills the relevant assessment: requirements of the new standard. t Brand and reputation: position as the indus- Our property insurance company conducted audits try’s leading company in of our units, and we worked with our insurance t Business acquisition opportunities and the broker to assess the risk management functionality capacity to seize them in nine of our units. We enhanced the centralized and t Position in emerging markets and global systematic assessment of business interruption risks and presence took into use a global training and auditing procedure t Ensuring sufficient competence resources related to transportation insurance. To secure sufficient around the world: business and leadership resources, we reviewed and further specified the risk know-how and the organization’s ability to management resourcing needs of our business seg- implement the strategy ments. In IT risk management we centralized the audit- t Customer relations management and changes ing measures for server environments. As a part of the in customer organizational structures common ways of operating, we compiled social media t Global economic cycles of key market areas guidelines aimed at securing our brand and reputation and customer industries in the new social media environment. t Global supply chain management In risk assessment we updated the risk map to cor- t Competitive position, and competitiveness of respond with our current business environment. product pricing and quality The exceptionally high number of crisis situations t Demand for services business related to natural phenomena required a lot of crisis t Impacts of changes in environmental legislation management measures during the year. Our top priority t Stability of the financing sector and capital in these situations is to secure the safety of people. Ad- markets and the impact on the availability ditionally, we focused on expanding the use of Metso’s and cost of long-term financing for Metso and crises management-related practices to all our key mar- its customers ket areas. Individuals responsible for crises management and crises communications as well as regional coordina- tors for crises situations were appointed for the different geographical regions. In the coming years we will deepen our analyses of We have started preparing for the EU’s Environmen- risks. A special challenge is in the assessing the interde- tal Liability Directive aimed at creating a common liabil- pendencies of different risks. We will also enhance our ity system to prevent and remedy damage to animals internal risk management communications by using the and the environment. intranet, arranging training and by increasing the audit- ing conducted by insurance companies.
www.metso.com Metso Annual Report RISKS AND RISK MANAGEMENT Metso’s risk map Category Examples Strategic risks
Business development risks Brand and values. New markets and business opportunities. Mergers and acquisitions. Competence, resources. Bal- ance sheet related risks. Natural resources, raw material and energy supply. Life cycle of products and production facilities. Global outsourcing, partners. Tax strategies. Customer reputation. Supplier reputation. Ownership structure.
Business environment risks Cycles in the global economy and customer industries. Depression and economic expansion.
Market risks Changes in customers and customer demand. Customer mergers and acquisitions. Changes in customer product management, product requirements and environmental factors. Competition. Business intelligence and competitor analyses.
Technology risks Technology vision, R&D capability and future competence requirements. Management of patents and trademarks.
Political, economic, cultural and Global political development, political unrest, terrorism, wars. Cultural and religious factors. Economic, financial and legislative development environmental legislation.
Climate and environmental phenomena Changes within regional climate. Epidemics. Financial risks
Liquidity Short-term liquidity, availability and cost of financing. Credit ratings.
Interest rate risks Changes in market interest rates and interest margins influencing financing costs, returns on financial investments and valuation of derivative contracts.
Currency risks Exchange rate fluctuations affecting the prices of raw materials and production of commodities purchased in non- domestic currencies. Exchange rate fluctuations affecting the prices of end products for export and cost competitive- ness of the products. Currency risks related to equity of subsidiaries outside the euro zone.
Credit and counterparty risks Credit risks pertaining to trade activities. Counterparty liquidity and reliability. Operational risks
Organization and management related risks Organizational effectiveness, key persons, competence, resources and management. Recruiting. Personnel turnover. Innovation capability.
Information security risks Data management. Confidentiality, integrity, availability, source, non-repudiation and accountability of data.
Production, process and productivity risks Production, sales, marketing, inventory, innovation, delivery and process risks. Environmental and risk management, customer relationship work, efficiency and follow-up issues.
Business interruption risks Production chain management. Supply chain management, outsourcing, dependency and logistics risks. Resilience and agility.
Profitability risks Profitability assessments and quotation calculation risks.
Project activity risks Risks related to delivery schedules and payment terms, project teams and suppliers.
Contract and liability risks Quality, contract and payment terms. Product technology risks and product safety. Product liability risks.
Crisis situations Crisis management capacity, operational capacity, emergency services and effective collaboration.
Illegal acts Fraud, misconduct and crimes. Hazard risks Occupational health and safety related risks Work-related illness, accidents and occupational well-being-related risks.
Personnel security risks Kidnapping, theft, violence and murder.
Environmental risks Leak, spill and explosion.
Fire and other disasters Fire, explosion and traffic/cargo accident.
Natural events Storm, drought, wild fire, flood, earthquake, mudslide, tsunami etc.
Premises security risks Break-in, theft, arson and vandalism.
Metso Annual Report www.metso.com RISKS AND RISK MANAGEMENT
THREATS | OPPORTUNITIES
HIGHMEDIUMLOW LOW MEDIUM HIGH
Risk profile Guidelines and principles Responsibility
Metso’s strategy and business plans, brand Business Management, Group Strategy func- development and protection programs, tion, Human Resources function, Legal Affairs corporate governance, internal controls, function, Finance function, Treasury function, mergers and acquisition process, patents Internal Audit, Communications function, and intellectual property rights, intellectual Investor Relations function, Business Intel- property policy, Metso’s values and Code of ligence, Technology Management function. Conduct, principles of sponsorship, account- ing principles, risk management policy.
Group treasury policy, internal controls. Business Management, Treasury function, Finance function, Legal Affairs function.
Corporate governance, internal controls, Business Management, HR organization, information security principles, production Production Management, Risk Management guidelines, business interruption risk analyses, organization, Internal Audit, IT function, Sales treasury policy, project activity safety guide- Management function, Legal Affairs function. lines, safety manuals, contractual guidelines, Code of Conduct, guidelines on preventing misconduct, guidelines on compliance with antitrust legislation, Group insurance program, crisis management instructions.
Occupational health and safety guidelines, Business Management, HR and occupational certification principles, travel safety guidelines, health and safety organization, Risk Manage- rescue plans, premises security guidelines, ment organization, Environmental function, Group insurance program. Rescue organization, Real Estate Management organization.
www.metso.com Metso Annual Report INVESTOR INFORMATION Investor information
INVESTOR RELATIONS
”Our main task is to support the correct valuation of Metso’s share by giving information on matters concern- ing Metso’s operations and operating environment, strategy, objectives and financial situation. We want capital market participants to use this information to form a balanced view of Metso as an investment”, says Johanna Henttonen, Vice President, Investor Relations. “In recent years the dialogue has increased also in inves- tor relations: we regularly gather and analyze market From left to right information and investor feedback for use by our top Marja Mäkinen, management and our Board of Directors.” Anu Haapamäki, ”We seek to provide correct, adequate and current Johanna Henttonen, information regularly and impartially to all market par- Elina Lehtinen ticipants. During the year we travelled days with top management to meet with investors in Europe and the United States,” adds Marja Mäkinen, Investor Relations Investor Relations contact information Manager. “Additionally, we arranged a two-day Capital Markets Day seminar in Helsinki. Some analysts Johanna Henttonen, Vice President, Investor Relations and investors from Helsinki, Stockholm and London Tel.: + attended the event. During the year we met over Email: [email protected] professional investors and analysts, and we participated in eight investor seminars around the world.” Marja Mäkinen, Investor Relations Manager IR Coordinator Anu Haapamäki describes the daily Tel.: + activities of investor relations: “We are responsible for Email: [email protected] investor communications as well as daily contact with investors. The easiest way to arrange a meeting with a Elina Lehtinen, Financial Communicator Metso executive or investor relations representative, is Tel.: + to contact me. We organize all investor meeting requests Email: [email protected] centrally, and we aim for promptness, transparency and good service.” Anu Haapamäki, IR Coordinator Elina Lehtinen, Financial Communicator, on the prin- Tel.: + ciples of financial communications: “Metso’s Disclosure Email: [email protected] Policy lays down our operational models and practices in various communications situations. In connection Investor Relations with the publication of our financial results, we always [email protected] organize a briefing for investors and analysts in English. It is possible to participate in these events also by phone or on the Internet, and a video is available also for later viewing on our website. The entire Disclosure Policy is available at www.metso.com/investors.”
Metso Annual Report www.metso.com INVESTOR INFORMATION
FOR SHAREHOLDERS
Investor services on the internet Annual General Meeting The investor information included in the Investors sec- The Annual General Meeting (AGM) of Metso Corpo- tion of Metso’s website contains a share monitor with a ration will be held at : p.m. on Wednesday, March , -minute data delay. It also includes monthly updated , at Helsinki Fair Centre (Messuaukio , Helsinki, information on Metso’s largest shareholders, the com- Finland). We publish a notice to the AGM about one pany’s insider register, an archive of presentations and month before the meeting, and since that time also the financial reports, as well as services, such as consensus agenda and meeting materials have been available on estimates on Metso’s performance provided by analysts, our website. a historical price lookup and an investment calculator Shareholders who are entered as shareholders in that enables you to calculate the value of your Metso in- Metso’s shareholder register maintained by Euroclear vestment. You can also find a financial calendar showing Finland Ltd by March , have the right to partici- the publication dates of our financial reports, as well as pate in the AGM. The meeting will be held in Finnish, but the dates and times of events planned for investors, such simultaneous interpretation in English will be provided. as the Annual General Meeting. The calendar also con- tains presentations of past events. Our website also has a Registration list of the banks and brokerage firms that analyze Metso Shareholders who wish to participate in the meeting as an investment as well as the analysts, along with their should notify Metso of their intention to participate by contact information, that are monitoring Metso. March , at the latest. A notice of participation can be submitted at Check out our investor relations services and operations www.metso.com/agm, by phone at + on our web pages: (from Monday to Friday between : a.m. and : t Financial reports p.m. Finnish time), by fax at + , or by mail t Calendar; investor meetings and seminars to Metso Corporation, Ritva Tyventö-Saari, PO Box , t Metso’s Capital Markets Day FI- Helsinki, Finland. Notice of participation must t Disclosure Policy be received before the deadline. In connection with t Contact information of analysts monitoring Metso the registration, shareholders are required to provide SEE LINK 1 their name, personal identification number or company identification number, address, telephone number and Silent period the name of a possible assistant, authorized representa- During the three-week period prior to publication of the tive or statutory representative. Any proxy documents annual or interim financial results, we are not in contact should also be sent to the above-mentioned address with capital market representatives. At other times, we during the registration period. will answer the enquiries of analysts and investors by Shareholders holding nominee-registered shares phone or email or at arranged investor meetings. and wishing to participate in the AGM can be entered into the temporary shareholder register by no later than : a.m. on March , in order to be able to partici- pate in the AGM, if the shareholder has the right to be entered in Metso’s shareholder register on the basis of the same shares on the AGM’s record date March , . The shareholders holding nominee-registered shares are urged to ask their custodian bank for instructions on registering in the shareholder register, issuing of proxy documents and registering for the AGM.
www.metso.com Metso Annual Report INVESTOR INFORMATION
Payment of dividends Credit ratings LINKS & The Board of Directors proposes to the AGM that a divi- NOTES dend of EUR . per share be paid for . The dividend Standard & Poor’s will be paid to those shareholders who are entered in August , www.metso.com/ the Corporation’s shareholder register maintained by Long-term corporate credit rating: BBB, outlook stable investors Euroclear Finland Ltd on the record date of the dividend (change from negative) payment, April , . Short-term rating: A- (raised from A-) Trading information for Metso’s share Rating for outstanding bonds and EMTN program: BBB www.metso.com/ Important dates related to the AGM share Moody’s Record date of AGM participation March 18, 2011 September , Metso’s share is Registration period ends March 24, 2011 Long-term rating: Baa, outlook stable (change from included in several Annual General Meeting March 30, 2011 indices: negative) www.metso.com/ Dividend ex-date March 31, 2011 indices Record date of dividend payment April 4, 2011 Financial publications Date of dividend payment April 12, 2011 We publish the Annual Report for in Finnish and Order Metso publica- tions and releases English and Metso Sustainability Results online www.metso.com/ Read more about AGM-related issues on our website: publication in English. The printed report will be mailed subscriptions t Notice of AGM to those who have ordered it. The report is also pub- t Registering for the AGM lished on our website at www.metso.com. We publish Read more about t Proposal on composition of the Board interim reviews in Finnish and English on our website. Metso’s share and shareholders, t Board’s proposal on profit distribution Live webcasts of the related news conferences can be p. – t Proposals on Board’s authorizations viewed in English on our website. We publish releases SEE LINK 1 in Finnish and English, and they are available on our How to submit a website. change of address for shareholders Trading of Metso’s shares www.metso.com/ Metso Corporation has one share series. Metso’s shares Publication dates of reviews and reports in 2011 share are listed on the NASDAQ OMX Helsinki Ltd and are reg- istered in the Finnish book entry register maintained by Financial statements review 2010 February 3, 2011 Euroclear Finland Ltd. Trading of Metso’s ADSs (American Annual Report week of March 7, 2011 Depositary Shares) in the United States is carried out on Interim review for January–March April 28, 2011 the over-the-counter (OTC) market. Each Metso ADS rep- Interim review for January–June July 28, 2011 resents one Metso share. The Bank of New York Mellon Interim review for January–September October 27, 2011 acts as the depository for the Metso ADS.
Metso Annual Report www.metso.com Metso in brief
Forward-looking statements It should be noted that certain statements herein which are not historical facts, including, without limitation, those regarding expectations for general economic development and the market situation, expectations for customer industry profitability and investment willing- ness, expectations for company growth, development and profitability and the realization of synergy benefits and cost savings, and statements preceded by “expects,” “estimates,” “forecasts” or similar expressions, are forward-looking statements. These statements are based on current decisions and plans and currently known factors. They involve risks and uncertainties which may cause the actual results to materially differ from the results currently expected by the company. Such factors include, but are not limited to: 1. General economic conditions, including fluctuations in exchange rates and interest levels which influ- ence the operating environment and profitability of The paper, and the pulp used in making the customers and thereby the orders received by the paper, was produced with machines and company and their margins equipment manufactured by Metso. The 2. The competitive situation, especially significant tech- report is printed on Galerie Art paper, which is nological solutions developed by competitors PEFC-certified and meets the environmental 3. The company’s own operating conditions, such as criteria for the Swan ecolabel. The printing the success of production, product development and inks and chemicals used in printing comply project management and their continuous develop- with the requirements for the Swan ecolabel ment and improvement and the REACH regulation. The printing ink is 4. The success of pending and future acquisitions and plant oil-based, and the other materials used restructuring are recyclable and eco-friendly. The energy ef- ficiency and emissions, from manufacturing to transportation, are monitored. The operations Group Head Office of the Lönnberg Painot Oy printing house are Metso Corporation ISO 9001 certified. Fabianinkatu 9 A, FI-00130 Helsinki PO Box 1220, FI-00101 Helsinki Tel: +358 20 484 100 Fax: +358 20 484 101 www.metso.com Contents
Metso From the CEO ...... 8 Metso and megatrends ...... 10 Metso and the stakeholders ...... 14 Vision, mission and values ...... 16 Strategy ...... 18 Services business ...... 20 Environmental solutions ...... 26 Global presence ...... 32 Metso people ...... 40 We are building a sustainable future Targets and achievements ...... 43 together with our stakeholders. Solutions that promote sustainability benefit our customers and support our profitable Business review Results Business at a glance ...... 50 growth targets. Customer industries ...... 52 by working together Mining and Construction Technology ...... 56 Energy and Environmental Technology ...... 58 Paper and Fiber Technology ...... 60 Group figures ...... 62
METSO Segment figures ...... 63 Operational figures ...... 66 Quarterly information ...... 68
ANNUAL REPORT
Financial Statements Table of Contents ...... 73 Board of Directors´ Report ...... 74 Consolidated Financial Statements ...... 83 2010 Financial Indicators ...... 137 Parent Company Financial Statements ...... 139 Shares and Shareholders ...... 142 Auditor´s Report ...... 148
Governance Corporate Governance Statement ...... 149 Board of Directors ...... 160 Executive Team ...... 162 Metso Executive Forum ...... 164 Assurance Report ...... 165 Risks and risk management ...... 166
Investor information Investor relations ...... 170 For shareholders ...... 171
Shortcuts Annual General Meeting ...... 150,171 Assurance Report ...... 165 Competitors ...... 19, 50 Customers ...... 14, 21,50 Dividend ...... 44 Executive compensation ...... 100,158 Financial targets ...... 44
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Metso Corporation | Fabianinkatu 9 A, P.O. Box 1220, FI-00101 Helsinki | Tel. +358 20 484 100 Fax +358 20 484 101 | www.metso.com MEVSK ANNUAL REPORT 2010